Two Market Rallies Disappear

It's kind of crazy to think that we are now at the same point we were in 1996. How awful for people who trusted others to manage their money.

Like others, I didn't have the clairvoyance (or the opportunity) to move my retirement money to the safety of cash. Most of us don't have many options when it comes to our retirement and even if we have a little bit of market knowledge, we are still extremely limited in our choices. I had 10 funds to choose from, and was discouraged from keeping my funds in cash (it was a rigorous process to sell the funds and place them into a cash account--and I was too lazy to the paperwork).

I decided last week to cash out my accounts after seeing how decimated they were over the past year. I haven't been saving for retirement very long. I started in 2003, so I didn't have much of a nest egg built up. But what I got back (after taxes and penalties) was half of what it was a year ago. The 10 percent penalty added to my frustration. I'm paying a penalty because I'm tired of market "professionals" losing all my money!

This might be extremely irresponsible of me, but I'm not planning on keeping a retirement any more. With the insanity that has happened in the government and the markets, I don't feel that I can really trust that the market will "always go up", or that my account is safe from a desperate government that has run out of ways to raise capital.

The spring sprung

Our "coiled spring" is now broken--to the downside. That's not good if you're a bull.

Today's action was difficult for me to trade. For the most part I avoided dumb impulsive trades. I didn't make money on any of the 5 trades I took today (the red arrow is one of the short trades that I made and stopped out). My chart on Tradestation didn't look as bad as the one above does. Today was much more choppy than I realized.

The blue dotted line at the bottom is the low of November 2008 (on a closing basis). You can see how the bears kept pushing us to the breaking point, but we didn't manage to bust through until the close. That makes tomorrow an interesting proposition. Will the bulls see this as reaching "capitulation" and try and take over, or will the bears see this as the bulls giving up and push the market down further?

I've included a bonus "narrow candle" chart for a trade that I didn't take today on EOG. If you would have sold short when the narrow 9:30 candle got broken (red arrow) with a stop above (orange dotted line) you would have made 2.7 times what you risked.

There weren't a lot of trades out there today after that awful gap down. Tomorrow should be interesting.

A coiling spring

The market's wedge has been narrowing for a long time now and seems poised to break out pretty hard. The premarket chatter points to the down side today and there doesn't seem to be anything positive to counteract all the negativity. The November lows are well within reach, so I'm looking for at least a retest of those lows.

I don't know if it will all come in one day, but even though I'm supposed to be waiting to let my account settle, I just might have to trade if the market opens itself up and gives us a strong trend day. Stay nimble out there. Be patient and wait for the opportunities to present themselves.

Still coming down

The snow is still piling up. I made a few pretend trades this morning. I don't feel the pain of losing as bad when I'm paper trading, but I had to look to make sure that the account was not real several times just to make sure.

I was up $1,000 for a bit and then ended up down $700 by the time I was finished. I'm not sure what my problem is, but I'm glad the money wasn't real today. Maybe this three-day weekend will give me an opportunity to re-evaluate everything and make some changes.

Snowbound

The market looks a little tepid this morning. That works out well for me, because I'm not trading today. We're getting a snowstorm this morning and the above photo is a look out my window. I like being able to stay home and enjoy the snowfall with my kids.

It's a good life so far. We'll see how long I can keep it going.


I'm just finishing up a book called High Probability Trading by Marcel Link. He addresses several issues I've been having lately (overtrading, "show off" trading, lack of self control, fear) in the book.

He highlights setting realistic goals, using multiple time frames, trading with trends, using oscillators. He also includes some very practical advice about placing stops and exits, trading systems (he includes TradeStation codes for simple systems), managing money, and backtesting.

Link isn't afraid to share some of his worst failures as a trader and I really appreciate that. Too many writers aren't very honest about how difficult trading can be. I enjoyed the book and recommend it to anyone wanting practical and timeless advice about trading for a living.

Can't seem to make a buck

I'm having trouble finding a trade that works lately. I'm planning on taking a few days off to regroup and figure out what my problem is. I'll probably try again next Wednesday.

The slide continues

I had myself all geared up for a good week this week after contemplating my mistakes over the weekend. It was all for naught as I traded away another 3R before calling it quits for the day. Of course, a perfect setup appeared 15 minutes after I quit.

I've gotten good advice from readers, and I think I'm going to back off a bit until things start "clicking" again. I plan to refocus on the "dummy trades" that I was making back in August and September. I was very successful with those trades, but I found other styles of trading that I thought would suit my lifestyle better.

The last 3 months have left me without a profit, so I'm thinking that I can't really handle day trading just the DIA and I need to branch out to other stocks using longer time frames.

Dumb mistakes

The week ended on a sour note for me as I lost another 3R on Friday. As I thought over things this weekend I think I've come up with some reasons for my poor performance the last two days of the week. My mistakes stemmed from three different sources:

1) Overconfidence
2) Impatience
3) Emotions

I guess number three could cover all of them, but I wanted to break things out a bit so I could focus more clearly on what was going on.

It seems so silly to me that emotions play such a large role in trading success or failure. I consider myself a very logical person who is rarely overtaken by emotions (some of the scenes in Finding Nemo and Dances With Wolves are exceptions for me--yeah I cried a bit). But during the trading day, my emotions often take over and I make boneheaded decisions.

I think part of the problem is that I'm still in that "trading is a hobby" mode. It hasn't quite hit me yet that my SOLE INCOME is now depending on whether or not I can pull money out of the market consistently. That "hobby" mentality sometimes causes me to trade with reckless abandon and only after the day is over do I look back and think, "Hmmm, that sucked."

Friday was an excellent example of my lack of patience. There was no gap at the open, but we moved higher on several strong pushes by the buyers. My first thought should have been, "This looks like it might be a "trend day" and watch for confirmations. Instead, because playing pullbacks to the 20MA has worked so well lately, I focused on that and made a trade that eventually went against me.

That was OK, but then I let my biases and emotions get in the way and I made the SAME TRADE again, right after I had stopped out. My thinking was that it didn't work the first time so it HAS to work the second. I stopped out again--down $1,000. I should have just quit.

Finally, as I sat back and watched things develop, I was able to determine that we were in a trend day and it was time to take trades accordingly. I did, and I made back my $1,000. But immediately, the market started going against me and I panicked. I moved my stop up above where I had logically placed it, and wouldn't you know, price dropped just below my stop, took me out, and then moved higher--down $1,700 and done for the day.

I've got to learn (and quickly) to avoid rushing in and trying to put on positions. There are so many opportunities each day, and I need to only take those high probability trades that I can feel good about taking even if they go against me.

We'll see how week two goes. If it ends up with results similar to this week, this could be a very short experiment.

Day Four-- Pigs get slaughtered

Whenever I get a little cocky, the market teaches me an unpleasant lesson. Today it whipped my buttocks thoroughly. I'm OK with a few trades that I made, but I made some boneheaded decisions today based on my bias that the market would go down hard today--another lesson to avoid the news and sentiment and just follow the chart.

Learn from my mistakes:

We started out the day with a gap which I attempted to fade and quickly stopped out with those two down bars. I'm OK with that trade.

Trade two was a divergence trade back to the 20EMA after a new low for the day. That one worked out (I love divergence trades). Back to even.

I was flabbergasted to watch price continue through the 20EMA (green line) and then the 50EMA (blue line). "There's no way it will break over the 200 (red line)!" I thought to myself. I shorted on the doji (trade 3) at about 11:05am. I should have targeted yesterday's close which would have been more logical than the 50EMA. It hit yesterday's close and went on to stop me out on the big up bar around noon.

Then I got all stupid and started taking edgeless trades. I took two (not shown) "it can't go any higher!" trades which stopped out as it DID go higher. Just dumb.

My next trade (#4) was a good one except I was pushing for just a few more bucks (I'm a pig). I shorted after the new high at about 12:15pm on a slight momentum divergence and targeted the 20EMA. Price mocked me as it neared the 20 and headed back up. Corey Rosenbloom told me that I should set my targets just a tad less aggressively since I'm missing them by pennies at times. I should have listened.

I lost 3R for the day which sucks because I decided today to double my position size to .5% of my portfolio value. It always seems to work that way.

Day Three -- Made up for day two

I was able to make up for yesterday's wash with a decent gain today. There weren't a lot of opportunities until about 12:45 when we got a bear flag out of DIA. The first flag met its target and then created a second bear flag which went on to meet its target (and then some).

I got out before price dropped below the 200 period moving average (red line) and I missed the divergence trade back to the 20 period moving average (green line) after the day's lows. I came out of the day with a 2.5R gain on a day that was kind of squirrely. I'll take it.

Day Two--Broke Even

The market provided several decent trades today. Unfortunately, I had a hard time taking the trades and sticking to them once I took them. I ended the day even.

The first trade I missed was a small gap that filled in 15 minutes. The second was that doji right at the 200ma. I missed that one.

I took the third trade which I saw as a big bear flag (it didn't go that way). I had a small target at the lows of the day and missed it by a few pennies. @#$$#!! (pretend cursing).

I took the first bollinger band breakout at about 1:30 and held on but then got all wimpy at exactly the wrong time. I should have seen that momentum high for the day (gray arrow) and expected price to go higher. At the same time the 200 moving average was helping out the 20 moving average provided and excellent supporting "intersection" of moving averages. But I had made up my losses for the day and was satisfied with that. Stupid.

Price went on to make another high (with a momentum divergence), but I was out, and I didn't feel like playing anymore. I went downstairs and worked on my wife's treadmill some more. It's still broken.

Day One--Trading for a living

I would have posted last night, but I hurt my finger trying to fix my wife's treadmill and it was difficult to type. I'm doing better now, and I can type once again. Thanks for all your kind cards and flowers.

Yesterday was hard for me to trade. Fortunately I had a trade go my way right off the bat for a 1R gain meeting my target for the day. Unfortunately, it was hard for me to take other trades I saw because I didn't want to lose my "salary". Here's a pretty picture of my day in trading on DIA:

I was on the fence about fading the gap after the open, but the market seemed to be recovering it's losses from the open so I bought and held until price reached the 20 period moving average. Right after I sold there was a decent opportunity to go short, but I was too happy with my gains and I passed it up.

The only other opportunity I saw was the "bear flag" near 2:00pm. In my opinion this was the best trade of the day. A short there would have quickly made its target.

So far so good.

Using overall market health to time stock screens

Parker from Texas sent me his ideas on selectively going long with AAII stock screens:

AAII stock screens are long-only. Which is great in uptrends. And spotty in downtrends. So, I fooled around and came up with a screen which tells me when to use the AAII screens. Here it is - one simple question:

On the monthly chart, did the S&P close above its 12 month simple moving average? If yes, use the AAII screens for the next month. If no, sit out or short the market. Here’s a chart:

Using this method, you would have gotten the signal to go long on 11/1/98 and get out 10/31/00. Here's how selected AAII screens fared over that 24 month period:

Zweig = +103.8% (~43% per year)
CANSLIM = +117.1%
Est Rev Up 5% = +243.9%
Tiny Titans = +133.3%

Note - the S&P went from ~1100 to ~1425 in this period, a 29.5% gain (~14% a year).

The next buy signal was on May 1, 2003 and lasted until 12/31/07. Here's the cumulative performance over 4 years, 8 months, re-balancing and reinvesting every month:

Zweig = +362.2% (~39% a year)
CANSLIM = +199.0%
Est Rev Up 5% = +350.5%
Tiny Titans = +381.2%

Note, the S&P went from ~910 to ~1460 during this time, a gain of 60.4% (~11% a year).

Had you shorted the S&P on 11/1/00 at ~1425, you would have covered at ~910 on April 30, 2003, picking up a nice profit while you wait to implement the screens again.

Under the same principles, you would have shorted on ~1460 on Jan 1, 2008 and be sitting pretty with the S&P at 860 right now.

So there you have it - a simple 12 month moving average screen on the screens. Unfortunately, it may be awhile before the S&P closes above its 12 month average.

Countdown to Trading for a Living

My wife and I have four days left of our careers. February 2nd is when I go "live" and make a go of trading for our only income.

The last several weeks have been very busy as we've been preparing for this change. We've slowly been moving stuff out of our old house to our new one. We've been working on figuring out insurance (that stuff is expensive when you don't work for someone), transferring our retirement accounts (what's left of them), and preparing for bills (we haven't had a grocery, gas, electricity, phone, or water bill in 11 years).

I've tried to trade here and there during breaks in the day, but I haven't made much progress. The real test will come when I can devote the entire trading day to finding good setups and exploiting the "edges" that I focus on.

I need to earn about $250 per day to pay the bills and live comfortably. That seems very possible. A good trend day can bring in $3,000 to $5,000. I've got to control myself all the other days that don't trend or have good setups. I find myself often taking trades out of emotion, fear, or boredom and it's those trades that I need to control. One or two good days a month is all I need. I just need to be really careful on the other day to avoid losing what I've gained.

Today is a good example. I was up $400 on 3 trades and decided to take an "knee-jerk" trade that had no real setup. In 10 minutes I was down to $70 for the day. That's just dumb.

I hope everybody enjoys coming along for the ride. It should be interesting.

The neat thing is, if a geek like me can do this--anybody can. So wish me luck, and look for posts to start flowing on February 2nd.

Saving money with an old car

I've mentioned my 10-year-old minivan a few times on the blog. By avoiding trading it in for something newer (can cooler), I've been able to save a lot of money that I use to trade. It seems to me that among average folks, transportation is one of the greatest financial drains. Endless car payments create continuous strain as the car quickly becomes worthless.

My car is worthless now, but I'm going to try and squeeze another 50,000 miles out of it. In the long run, I value financial independence over a sweet ride.

Get rich slowly has a good article about driving an old car.
Here's a great animated slide show from Dave Ramsey about the real cost of car payments.

Missed opportunity

Despite the market making the worst drop on inauguration-day in history, there were tons of opportunities on the short side. I took one opportunity in a banking stock and I got spooked out of it before it made its move. Patience, patience, patience.

I entered (selling short) the trade after price pulled back to the 20EMA (blue circle). It went well for an hour and then turned against me breaking the 20 and heading for the 50EMA. I had placed my stop above the 50 but moved it closer when I saw things reversing.

Had I held on without moving my stop I could have made a tidy 5R. Instead I broke even.

I'm learning the importance of placing my stops further away (and keeping them there) and shooting for smaller targets (through Corey Rosenbloom's mentoring). I wish I would have stuck to my guns on this one.

Girls and Star Wars

Despite years of half-hearted effort, I have not been able to convince my wife to watch any of the original first three Star Wars movies (I wouldn't put her through the torture of watching the more recently released trilogy of films).

I've been able to convince (force) my daughters to watch the series and they have at least pretended to like them, but I can't figure out why Star Wars just doesn't appeal to girls. Maybe that's why I didn't date one until I graduated from high school.

I ran across this video that explains Star Wars from a female (who hasn't really watched any of the films) perspective. It made me laugh.

Changes for 2009

I celebrated my 42nd year as a human being a couple of months ago. The reading glasses are for effect, but I do need them every once in awhile. How did I get so old so fast?

The last two months have really sucked for my trading (down 2.73R in November and up only .10R in December). Given those paltry returns, you would think that now would be a very inopportune time to leave a secure job situation and attempt to trade for a living. You would think.

In three weeks that's what I'm planning to do. My wife and I are leaving our jobs (we work together--more on that in three weeks) of over 11 years to pursue new challenges and dreams. I would like to trade full time and (hopefully generate an income from trading), and my wife, Tricia, is planning to focus on home-schooling our kids (Go Tim Tebow!--he was a homeschooler as well).

My goal is to bring in 5R to 6R a month, which seemed easy a few months ago. Lately I haven't been as adept at pulling money out of the market, so needless to say, I'm a bit panicky about this new adventure.

We're going to give it 6 months to a year to see if we can make it work. If not, I'll go back to work. We live in Nebraska, so the cost of living is pretty cheap. We drive a 10-year-old minivan (pictured along with my house, two kids, and new tree) and we live a pretty conservative lifestyle. We'll have to cut way back on our world travel (I had to get new pages in my passport because I had too many visas).

I look forward to the new-found freedom that this next step in our lives will provide. People have told me that trading for a hobby and trading for a living are completely different. I'm sure they are.

But I feel prepared to weather the ups and downs of the market as I try to squeak out a measly salary each month. This blog will be a sort of journal for me to document the good times and the bad during the next year.

I hope to be able to post every day during the next year. I haven't had much time lately with all the changes that have been going on. Moving has been a process. I'm not sure how we accumulated so much stuff when we live in a 600 square foot apartment--to be fair, the apartment is attached to a 6,000 square foot house. When we moved in 11 years ago we moved all our belongings in the back of a station wagon in one trip.

For the immediate future, my focus will still be on day-trading. I love the simplicity of stock screening, and I'm sure that I'll continue to track screens over the next few years, but I think that I can limit my risk and create much larger returns by trading intra-day.

I will no longer be tracking stock screens along the side of the blog. It takes way too much time and my focus has shifted to a different style of trading.

Let me know if you would like me to continue to post my "R" values on the side as well.

Prudent Speculator 2008 Performance

Even the best performing newsletter over the last 20 years (according to Hulbert Financial Digest) got hammered last year. Ouch.

Revisiting 2008's Goals

Boy, if I had any idea what 2008 was going to be like, I'm sure I would have made different goals. I went into the year pretty cocky after chalking up a +40% year using a mechanical stock screening trading model. I thought the S&P 500 would probably have another weak year, but I never imagined that it would drop 40%. These were my goals for 2008.

1. Beat the S&P 500--Shouldn't be too hard, but I'm already behind on that goal thanks to my irrational trading. I did beat the S&P 500 by 12.79%. Unfortunately, the S&P was down 38.5% so that means I was down by 25.71%. While I'm glad I didn't lose as much as the broader markets, I'm disappointed that I let myself get dragged down with it. As an individual trader, I have the opportunity to stay on the sidelines when things are not good, and I rarely did that. Most of my loss came while I was trading my stock screens (21%). I was able to stop the bleeding when I began day-trading, but in the last two months I made several "irrational" trades and ended up where I am today.
   
2. Beat Stock Superstars and Prudent Trader Newsletters Stock Superstars ended the year down 44.6%. The Prudent Speculator hasn't reported year-end numbers yet, but at the end of November the portfolio was down nearly 50%. Mission accomplished--but again, I can't make a living losing 25% in a year.
   
3. Make over 20% on my portfolio--My goal is to eventually trade for a living. If I can eek out 20% each year, I'll be able to meet my goal in the next 5 years. No deal on this one. I was never above +1% during the entire year. I'm planning on giving "trading for a living" a go this year, so I'm bumping up my plans despite a down year.
   
4. Beat last year's return--I'm not doing so hot so far this year. Last year at this time I was up 12%. I've got a ways to go. I only missed last years returns by 66%. Yikes.
   
5. Control my emotions--I'm a miserable failure so far this year. Hopefully, I'll get a grip and start doing better with this goal. I'd like to think that I made progress in this area, but emotionalism is still a struggle for me. I think going forward into 2009 it will be imperative that I learn to keep my emotional side under wraps.

The market provided plenty of humbling opportunities for me this year. It also forced me to change my game plan. My portfolio would have been down double what it was if I had continued following my stock screens without question. This just wasn't the year for mechanical investing (as the portfolios in newsletter screens clearly show).

In a way, I'm glad the year was so challenging. It forced me to re-think my strategies and to learn new things that were outside my comfort zone. I made my first "short" trade this year as well as my first day-trade. I made my first trade based on technical analysis (chart reading), used margin for the first time, and traded an index fund for the first time.

The things I've learned will hopefully give me more tools in 2009. It has been a crazy year. I'm glad it's over.

What am I thinking?!

After experiencing the worst year of my admittedly short trading career, I have decided to mark 2009 as the year I attempt to trade for a living. I've always had an ample income to support my trading hobby, but soon the money will dry up and I'll be fully responsible for creating an income out of the ups and downs of the stock market. I am scared out of my mind.

I have a wife and two kids to support as well, so the pressure will be on. However, I can't think of a better way of earning an income, and I look forward to the freedom that trading will provide. I love the market, and the opportunity it provides. I'll keep everybody informed on a daily basis. Wish me luck.

Best Posts of '08

I went back through all my old posts and was amazed at the journey that 2008 was. Things changed dramatically for me and for the rest of the world as we experienced the worst market since the Great Depression. I transitioned from a stock screener to a daytrader over the summer and was schooled many times by a volatile market. Here are a selection of posts that seemed to generate some interest over the past year.

• Stockpunk answers your questions
• One good trade can make your month
• It could always be worse
• Mistakes can teach the best lessons
• Too wimpy on an amazing up-day
• One day at a time
  

Laying low the next couple of weeks

I'll probably be keeping my eye on things for the next two weeks, but I doubt that I'll do much trading. There's too much going on right now to worry about a thinly traded market. I might chime in here and there, but for now, I wish everybody happy holidays. We made it through the most insane market in years. Here's to hoping '09 is a little more predictable!

No trades last two days

I've been a bit busy with stuff the last couple of days and I haven't had a chance to watch the market at all. It's actually kind of nice to be able to go back after the market close and find trade setups. It's so much more easy when it's not in real-time.

Friday looks like another busy day, so I'll probably stay out until next Monday.

A trade that worked and one that didn't on DIA

I was dashing back and forth from my computer today and I really shouldn't have been trading, but I just can't give it up! It ended up OK, with a 4.4R gain. I probably would be upset with myself if I had lost money today.

I got out too soon on my successful trade as the market had a lot further to go. I was just so tired of being burned and I knew I wouldn't be able to monitor things. With the way trades have gone lately, I'm happy to finally make a nice gain. We'll see if my fortune continues. I still plan to trade very lightly for the rest of the year.

I'm still alive

This past week was the busiest of the year for me, so I haven't been posting or trading. I did take a couple of dumb trades on Friday and lost a couple of "R". Hey, that's just the way I roll.

I will be transitioning with my work and with my future plans in the next couple of weeks and I'll keep everybody informed as things happen. I'll probably limit my trading for the next couple of weeks as I have an overwhelming number of things to get done.

I'll attempt to post as I have time.

Wash Day

My day was a wash. I was up $1,000 for a while, but things didn't go my way on a few trades. I found it difficult to trade today because the market flat-lined for several hours and didn't provide any decent setups.

The bulls should be encouraged by the last few days of trading. Things have really held up well despite everything that is going against the market right now.

I found this video of Peter Schiff to be quite entertaining. He really did a swell job predicting what would happen this year.

Week In Review 12-06-2008

Although I lost a bit of money this week, I'm still chalking it up as a success. I was able to reign in my impulsive trading and slow things down dramatically by:

• waiting until 10:00AM (Eastern) to start making trading decisions
• paying more attention to 30 minute charts
• using 5 minute charts to confirm the 30 minute charts
• avoiding any trading if I don't see good setups
• avoiding trading when I'm too busy to adequately monitor trades

For the week I lost .27R. I traded 3 out of 5 days this week.

For those of you following the Zweig screen, it seems a bit broken lately. This last two weeks there was only one stock selected VSEC. In my carefree screen trading days I would have put my whole account into that one stock.

I've never seen so few stocks selected by the Zweig screen, so until things turn around a bit and we get at least 5 selections, I'm going to quit tracking the screen's performance. What a wild year.

A trade that worked and one that didn't

Yesterday I made two trades on DIA. The first trade was based on a bear flag that appeared around 11:30. I saw it developing and placed an order below it anticipating some dojis and a bounce off the 20EMA. Everything went according to plan, but things quickly reversed on me, and I stopped out around noon.

I had noticed the momentum divergence (MACD chart with yellow line) but I ignored it believing that there was no way the market could make gains after the dismal jobs report. Of course, whenever I assume something, I always get kicked in the pants. You would think I would have learned my lesson by now. Nope.

The second trade bailed me out. This time I paid attention to the divergence and bought at the moving average crossover a little before 2:00. I held on to near the close for a decent 2.34R gain.

Links for a choppy day

Brian Shannon of Alphatrends provides an interesting and educational glimpse into his trading day. I think Brian's videos are an invaluable resource for anyone interested in learning technical analysis and market dynamics.

Corey Rosenbloom at Afraid to Trade continues to demonstrate how Elliot Wave analysis works on multiple time frames. I find Elliot Wave and Fibonacci numbers fascinating and Corey seems to have a knack for spotting patterns and a deep understanding of how markets work.

Charles Kirk demonstrates the rewards of discipline in trading and financial frugality.

Pradeep Bonde at Stockbee summarizes several popular trading books to help you find the one that meets your needs as a trader.

Tim Ferriss has a new TV show on the History Channel where he learns something in a week that usually takes 5 years to a lifetime. I left a comment on Tim's blog encouraging him to use his amazing abilities to learn how to manage his own money after he attended a Berkshire Hathaway meeting here in Omaha.

Return to Normalcy

My "old school" or "dummy trades" today really helped me get back to the old feelings of unemotional trading. I avoided news, chat rooms, and many other bias-creating forms of information. That helped me focus on 30-minute charts and just a few candidates for trading.

I'll have to admit, I more fun trading today than I have had in over a month. I was even down $600 and it didn't bother me because I was trading what I saw and not what others were seeing.

My best trade today was CASY.
I took the trade after the narrow 10:30 candle on the 30 minute chart setting a protective stop (blue dotted line) right above the candle. The stock trended perfectly the rest of the day as you can see on the 5 minute chart.
I got jumpy as the market moved into positive territory and I sold when price broke the 9 period moving average. As in classic trends, the price bounced off the 20 MA and headed south for another nice drop into the close. I made 2.09R on the trade, but I missed out on another 3R. Part of my nervousness came because the market as a whole wasn't trending down (at the time I sold) and CASY was already down 13%. I thought the chances of it continuing down were slim.

I missed an opportunity on POT as well. Here's the 30 minute.
POT quickly moved in my direction and I moved my stop to break-even. I stopped out soon after and then POT moved down the rest of the day. I missed a perfect bear flag on the 5 minute chart.
I had a couple of long trades today that went against me. Overall, I made .87R on the day--my first positive day since November 19th.

Month In Review -- November 2008

November was my worst month since I started day-trading in August. I lost 2.73R for the month.

November also took a toll on me psychologically. I just couldn't seem to make things work week to week and I ended the month "Afraid to Trade" as Corey puts it. I avoided nearly the entire last week as the market rallied nearly 20%!

There are a few things that I think went wrong in November. First, I got caught up in shorter and shorter time frames to the point that I was getting stopped out of trades within minutes. Losing money that quickly created anxiety, so I'd lower my position size after my first or second loss. Often, when I finally hit a winner, my position size was so small that it didn't make up for the losses I took on the first couple of trades--which created more anxiety.

Second, I think I've tried to cram too much information into too small a time frame. What I mean by that is that I've learned an enormous amount of trading setups, techniques, indicators, patterns, etc., and too often I try to cram them in to every trading day, and I end up making too many trades in a frantic bid to "trade them as I see them".

Third, I let too much "noise" affect my trading. I read far too many blogs, listed to too many news programs, and spent way too much time in stock forums. Nearly every single time, when I traded based on some outside influence, I lost money--often very quickly.

Fourth, I made too many trades--83 in all. I traded 65 times in August and made 23R.

Fifth, the market seemed a lot more volatile in November, and many of my setups just weren't compatible with the type of volatility that we were experiencing. I should have been much more patient with my trades, and allowed the day play out a little more before I committed money.

When I started day trading in August there were days where I couldn't find a good setup, and I would end the day without trading a single stock. Lately it seems that I find dozens of setups which all seem to go against me.

I think I am going to try and step back from the five minute time frame to the 30 minute time frame that I was trading in August. I tried that today, and although I didn't find any good setups, I was much more relaxed and really felt good about staying out of the market because nothing "looked right".

I guess I should still feel good about how I'm trading. Last November I lost 17% trading the Zweig screen, and most of that disappeared in one week!

I'm back and I'm losing money

I decided not to trade last week with the Thanksgiving holiday and all that. Of course, last week turned out to be one of the most trade-worthy weeks in long time. Curses to you Mr. Market.

My job prevented me from trading yesterday which was an incredibly trade-worth trend day.

So I had a couple of hours today and the market see-sawed me out of a 1.5R loss. I'm getting a bit frustrated.

I'll be back tomorrow with a November wrap-up.

This is getting old

I was up a thousand bucks for about an hour today. I gave it all away and added more. Down 1.24R.

I struggled with several trades that were going my way early on. I felt like we were in a trend day so I wanted to hold on instead of taking profits early. Things didn't go my way and I ended up breaking even or losing on most of my trades.

One of my positive trades today was CBST.
CBST had a long period of consolidation and a tight bollinger band squeeze around 2:00. I thought the stock would shoot up a bit more than it did and I sold it as I saw the general market start to falter toward the close. Of corst CBST went on to finish the day near its high.

MVL looked to me like it had a nice bear flag setup in the direction of the general market.
It reversed and stopped me out and never made its "target".

My trade in POT was just stupid.
For some reason, I gut feeling that shorting POT was a good move. There was no real reason other than my "feelings" and as usual, the market rewarded my lack of edge with a 1R loss.

DANG IT!!

All day long I waited for a rally and played a couple of short rallies unsuccessfully. I kept my powder dry for a late afternoon rally. A meeting at 2:30pm went long and I rushed to my computer to watch the final minute of the 500 point rally that I missed. What a sucky week.

Today I lost 2.25R.

Chewed up and spit out

I was anticipating an oversold bounce today. We got a bit of a bounce for a short time. Then all heck broke loose again. You can almost anticipate a 300 point sell off or rally at the end of every day anymore.

We've sliced through the lows of 2003 now. Wow. It's pretty scary out there.

I lost 1.3R for the day.

Opportunity Wasted

I had the potential for a swell day. My self-doubt got me out of trades too early as the market gave up the ghost. My short trades could have brought in 10R. Here are the two that I could have made a nice return on.

There was really no excuse for my exit on TCO. I got tired of holding on to it after it gyrated for an hour. The market was in a solid downtrend and when I saw TCO touch the 20MA I got rid of it and broke even.

I'm too worried that the market will whipsaw me out of my positions and I've been way too quick to move my stops to break even for fear of losing. I've proven that if I let my trades pan out that I make more than when I monitor them too closely. It's still incredibly hard for me to watch a trade go against me even if it has only made a little bit of cash.
SYK was a little more iffy. I probably would have sold when price broke the 50MA around 3pm so my sell around 1pm netted me a bit more. Of course, in retrospect, holding until the close would have been the smartest move.

I had myself convinced that when the DJI hit 8100, that all sorts of heck would break loose and the market would rocket upward. Obviously, that didn't happen and once again my bias cost me. Van K. Tharp always emphasizes that we don't trade the markets--we trade what we believe about the markets.

I topped my emotional trading today with a ridiculous scalp play on DIA.
I thought when price broke the 50MA average that we were going to shoot upward. The market bounced off the 50 for a half hour and then plummeted. I was away from my computer for 45 minutes after I made the trade and came back to see that my stop had triggered and that the market was free-falling--just the opposite of what I had thought was going to happen. In addition to being humbled by my poor decision-making, I discovered that I had used a position size that was double what I intended. Dumb.

For the day I made a lousy .30R. I guess I shouldn't complain given the markets big declines, but I should have done better.

Terrible Tuesday

After analyzing my returns by day of the week, I discovered that my Tuesday returns averaged out to be negative. Today I continued the trend by losing 3.57R. I'm such a punk. Fortunately, I'm still trading half of my normal position size so I didn't lose an insane amount of money.

Here are my average "R" results since August for each day of the week.

Monday--2.20
Tuesday--(.51)
Wednesday--1.03
Thursday--.27
Friday--.70

So, it looks like I've got some things to figure out for my trading on Tuesday. I think maybe I grow too confident after a good day on Monday and figure I'm trading with "the house's money". I tend to throw my trading rules out the window and take impulsive trades that quickly turn on me.

Also, Tuesday is usually a busy day for me with meetings and appointments. I often try to "squeeze in" trades when I have time available. Obviously, that strategy hasn't worked out too well.

An Uncooperative Market

I remember the days when a tenth of a percent was considered a trading range. Today the Dow was bouncing between 8500 and 8375 and that was considered "range bound". The market made it difficult to find clear entries and exits for me today. There were some really good setups, but I got too jittery and didn't allow any of my trades to develop too much. I made 1.30R today, so it wasn't terrible.

Many stocks spent the day stuck in a range today, so I decided to trade a couple of Bollinger Band squeezes.
AOC started nicely but I raised my stop too soon and broke even. It continued higher and I missed out on a couple of "R" in gains.

I traded AMZN going the opposite direction (I shorted it). I had a good gain on it, but it turned on me (I ignored the signs to sell early). I made .50R on AMZN.

My main goal right now is to preserve capital while I continue to learn how to exploit the edges I see. My goal remains to crawl back to break-even returns for the year by the end of 2008. I'm still down about 15% YTD, so I've got a ways to go.

Revisiting the Zweig Stock Screen

Last week AAII's Zweig Stock Screen had just 3 picks. That's the lowest I've seen since I started following the screen several years ago. This week there were just 4 picks (the numbers on the side are 26 week relative strength):

The top 5 relative strength stocks in the screen are down 50% year to date.

Week In Review 11-14-08

I was able to improve my performance this week after feeling a bit out of control over the last two weeks. I made 5.07R for the week. Unfortunately, I decreased my position sizes by half for the whole week, so my profits were cut in half as well. That's OK, because reducing my position size allowed me to get back to my old trading habits and kept me from getting overly emotional with each trade.

After my stupidity on Tuesday, I made it a priority to keep my losses small and avoid over-trading. I feel good about how the last three days ended up (a 5.25R gain). Now if I can just keep things in check and continue to trade this way, the month should end up pretty good (hopefully).

Another Crazy One

I had a hard time finding any good trades today. I placed a "fade the gap" trade after the open. It nearly filled and then headed back down. I made a piddly .34R on that one.

I made a bit over 1R on a quick scalp of SRS during the downward push.

My final trade came on a bear flag setup on NTRS. It was up over 1R but retraced back along with the rest of the market. I sold it for a .21R gain.
For the day I made 1.58R.

NOW we get a trend day

Yesterday's fake trend day got me all scared and so my trading today was pensive and skittish. After the bear flag failed at noon, I decided to call it today and took a paltry .42R on a day that was practically handing me setups. I had some afternoon appointments so it's all OK.

To show you the fractal nature of chart patterns look at the chart below. I originally posted this chart because I thought it was the chart for today. Actually it represents the last 6 days, but it's kooky how it has nearly the exact same pattern as the 5 minute chart for today.
Here's a trade that I wimped out on way too early today. I was following 30 minute charts today and noticed a narrow candle on MOS. It went on to follow the market down for the rest of the day.
Here's another trade I wimped out on. I took the trade after the bear flag, but when things reversed a bit, I got out for a tiny profit. If I had held until the end of the day, I could have made 5R.
It's important to take one day at a time. Every trade is different. I missed out on a potential 8.75R today because I let yesterday's trades affect my trading today.

Some good advice

Brett Steenbarger has some good advice on TraderFeed for guys like me when it comes to managing risk throughout the day. Today I lost more than I should have because I didn't follow my rules. Here's what Brett has to say:

"Every intraday trader needs to have--and enforce--a "drop dead" level for the day. That reflects the maximum loss you're willing to incur in a single day's trading. If you hit that level in a day, it tells you you're not seeing the market well and, like a pitcher on a bad outing, you need to get off the mound and call it a night.

In my own trading, I have--in addition to the drop dead level--a warning level that is roughly half of the maximum loss I'm willing to incur. If I hit that warning level, I drop my size (risk) and don't return to normal-size trading until I've worked my way out of the red for the day. By heeding the warning level and dropping my size, I give myself a chance to battle back. I also give myself an opportunity to participate in afternoon moves that could make my day. Dropping the size and waiting until I see markets well keeps me in the game."

Whipsawed

I made the assumption that today was a trend day and quickly stopped out of several trades as the market broke through the 50MA. It came down just as quickly so I imagine a lot of traders got smacked around today.

I was too impatient with my trades today and I didn't really wait for confirmation from the averages or from the trades themselves. Take a look.

CVS was probably the closest thing to a good trade today. It went against me for a 2R loss, but I think the setup was there. I took the trade after the bear flag and made money until the reversal near 1:45pm.
DOW was my first trade of the day. I sold it short on the first red candle on the 20MA. It didn't take long for me to stop out as the stock headed for the 50MA. As it turned around, I thought I might have placed my stop too close, but the stock really didn't go anywhere and I would have been stopped around 2pm anyway.

I lost 3.42R today. I violated my rule of quitting after a 2R loss because I was convinced that the market would continue trending down. Dumb.

I went back to my trading journal to figure out why things don't seem to be working for me lately. What I discovered is that I have become much more impulsive with my trading. In August, I seemed to have a lot more patience. I traded only 11 days out of 20. My largest daily loss was 1.83R. I also was trading using 30 minute charts instead of the 5 minute charts that I've been using lately.

Here's the 30 minute chart for DOW.
On this time frame there is no clear entry point or trend. I should have used this chart to confirm whether DOW was a good trade or not.

Here's one that I was following but didn't take.
SOHU had a decent 4.23R potential with much less stress monitoring the 3o minute chart.

I think that I'm going to try and slow down a bit. I seem to do much better at a less frantic pace and my decision making seems to be less impulsive.

Cool head=cool profits

Today I traded the way I'm supposed to. I followed my plan, I avoided outside noise (I didn't read or listen to anything this morning), I chose stocks with clear setups, I had specific targets and I avoided emotion-laden, knee-jerk decisions.

The market rewarded me by giving back my losses from last Friday -- 4.37R.

Most of my gains (3.45R) came on one trade (out of the four I made today). Let's take a look.

I actually took two trades on NRG. The first was just after the bear flag formation. It petered around for 15 minutes and I sold it at break even. After that last doji near the 20MA I took another position and followed it down until it quit around 1 pm. I debated holding on, but I'm glad I got out.

I made my first "fade the gap" trade with DIA. I got nervous when things reversed a bit and I got out at break-even. I should have held on. Maybe next time.
Overall, I'm happy with how things went. I don't know why I got caught up in trading in ways that leave me feeling exhausted (and broke). I'm glad I made some money today because it will reinforce my trading plan and help me get back on track.

Should have stayed out.

I threw all my rules out the window and traded like a true punk today losing $3,000 in the process. I was up $500 at two different times and still insisted on trading it away. The whipsaw late in the day wiped me out and I was done.

Unfortunately, I can't feel "good" about this loss since I made all the mistakes that I made last Friday--with the same results. I went for quick scalps while avoiding my bread and butter trades, I traded after I had lost 2R (ending up with a 4R loss), I followed the chatter on a stock chat room, and I didn't take profits when I had them.

So I turned an OK week into a crummy one. For the week I was down 1.67R. My frantic trading created nearly $400 in commissions.

I've got to get back on track and quit this stupidity.

Where are we going?

It's hard to know what the market is going to do today. Futures were positive, but with the breaking news about unemployment being blasted all over the news, it's hard telling what chaos that will wreak on the markets. I think I'll sit out the first hour and let things settle out before I try any trading. Be careful out there!!

Another Missed Trend Day

Today was a nearly perfect trend day (take a look at Corey's explanation), but I traded all day fearing a reversal. I made over 2R, but I could have made a ton more if I had just followed my instincts rather than worrying about being wrong.

All my trades were 10 minute scalps, so I don't have any good charts to show you. There were a ton of bear flags out there, but I was just too wimpy to take them.

Flat on a trend day

There were so many opportunities out there today to go short, but nearly every one I took didn't work. I ended the day up about .36R.

I've never traded the indexes, but the DIA set up a nice bear flag about 12:30. It went on to make the target near the close after reversing for a bit. A stop on the declining 50MA would have insured a decent risk/reward return.

I was up over $1,000 on two stocks today. After moving my stops to break even, they -- broke even. I can't seem to get the knack for how to manage my stops so I can avoid losing but also keep my profits. Sometimes I wonder whether it would be better during this volatile market period to grab 1R profits whenever they appear.

The Market giveth & the Market taketh away

Monday was good with a 1.38R gain on two trades. I gave all of that back today with a 1.77R loss. I'm avoiding the frantic trading that characterized last week.

Month in Review -- October 2008

Despite the record breaking downturn in October, I was able to survive the month with an 8.81R gain. Ironically, the last week of October was my worst. I was up nearly 15R for the month going into last week. I got too cocky and started trading for quick gains and got my clock cleaned with a 4.16R loss for the week.

I have some time to reflect over the weekend, and I know what mistakes I made. It takes me a long time to learn from my mistakes, but hopefully I won't be taking the same stupid emotional trades that I took last week.

My stats for October:

Win percentage: 41.18%
Number of trades: 65
Number of days traded: 21
Average number of trades per day: 3.1
Average win/loss per day in "R"=.42

I've noticed that my average win/loss per day in "R" has been declining each month. I only traded 11 days in August and averaged 2.12 R each day I traded. I think I was sticking to my system better in August. The same goes for September.