DNDN Blowup

DNDN was a stock I was following looking for a breakout trade today. Fortunately, I didn't take a long position when it was up 16%. In a matter of a couple of minutes it went from being up 16% to down over 70%! Trading was halted on the stock after that insane drop. I can't imagine what people are feeling who didn't have a chance to get out.

There's an inherent danger trading individual stocks--even those with large volume. DNDN traded over 28 million shares up until the drop. Yikes.

A trade using Elliot Wave

I'm pretty new to Elliot Wave Theory, heck, I've been using technical analysis for less than a year. I'm pretty fascinated by the psychology behind it, and I've noticed that watching for Elliot Waves helps me avoid overtrading and seeing setups that don't exist.


Here's an actual trade that I took today using Elliot Wave. I have erased the number of shares (100,000--OK not really), but you can see my entry and exit on the fifth wave of the move on SPY. I got out before a move higher, but I was a bit skittish with this being my first try at using Elliot Wave.

I owe Corey Rosenbloom at Afraid to Trade credit for teaching me about Elliot Wave through his blog and personal mentoring. If you're interested in learning more about it, check out Corey's interview with The Disciplined Investor.

Happy Life Day

Bea Arthur ruined Star Wars

I know it wasn't her fault--she was probably just picking up a check, but there is really no excuse for this monstrosity. Fortunately, I didn't see the Star Wars Christmas Special when I was a kid. It would have ruined the series for me for sure. Of course, one could argue that the Christmas Special was better than the Prequels.

I'm a geek.

A look at the weekly S&P 500

I've been burned a bit during April because I've had a bearish bias all month. That hasn't served me well as price continues upward. Looking at the weekly chart gives us an idea why the March and April push upward occurred.

As price continued making weekly lows, momentum (as demonstrated using the MACD) was making new swing highs. This should have given me a clue that the downward move was losing steam and it was time to change my bias.

It looks like now that the rally is losing steam as it meets resistance at the 20 week EMA. I'm trying to ignore my biases (which are still bearish), but I can't imagine this rally lasting too much longer.

Divergence on Cambell's Soup

Campbell's Soup set up a nice bear flag on the 5 minute chart that met its target . It then set up another bear flag after that. Normally I would take that second bear flag (even though they don't occur very often). But the second bear flag occurred on the third swing up of the MACD as the price made its third swing down. Time will tell, but usually when we see a pattern like this it means that the run down has run out of steam and it is less likely that the trade will succeed.

Yay! A new post for StockPunk

I'm sorry to the three of you that read my blog (not counting the 3,000 Anonymous haters). I haven't been posting much lately because my trading has sucked and I've been trying to figure out how to stop the bleeding.

I had a pretty good month of March, but I've given everything back and more during the month of April. So, out of that frustration, I kind of put writing on the blog on the back burner.

I've noticed that when I write about some of the frustrating trades that I've made that it encourages folks to scold me and tell me that I suck so I figured that it was best not to post while I sucked so that I didn't have to receive several comments confirming that indeed I do suck.
On to the lesson of the day. These charts aren't complete because the day isn't over, but I wanted to show a trade I made and how using the MACD I was able to determine a good exit point. I traded US Steel (X) using 15 minute candles. I was looking for a breakout of the opening range low because I thought that we were going to see a big down day all around. As soon as that first candle was broken, I got in. I placed my stop just beyond the 200 SMA which was nearly triggered before the stock headed in my favor.
I took partial profits at 1 R, and planned to hold until the end of the day. But I noticed a divergence on the MACD on the 5 minute chart. As price continued making new swing lows, momentum made new swing highs indicating that with each swing, sellers were less aggressive. At the third swing, I decided that the move was probably pretty much over and it was time to get out. At least I got one decent trade this month.

Using Multiple Time Frames to Exit a Trade

SPY has been giving me fits lately, so I've been looking at other alternatives. A "narrow candle" trade setup on SYNA this morning so I took it. I risked 15 cents per share and gained about a buck per share for a 6.66R trade. It's been a while since I've had that much of an "R" gain on a trade. It's much harder to find those kind of risk to reward ratios trading indexes.
I've always struggled finding decent exits with these narrow candle trades. Using the 15 minute chart in conjunction with the 30 minute provided a great exit--the doji at 2:30 (red arrow). Unfortunately, I was away from my computer when it happened, so I exited at a less-than-perfect spot.

Finding great setups in other stocks

I've been concentrating on trading SPY lately (with limited success) and I've kind of stepped away from trading individual stocks like I used to. I watched APA as I traded SPY today and saw some great setups that I should have taken.

There are two trades that are really close. The first is the bull flag (click on chart to make it bigger). The flag dropped to a moving average with a doji in a very nice pennant pattern. Very near that point the moving averages crossed over creating a great place for a very tight stop and a specific target.

Soon after the stock took off again, price broke through the previous high and created a trend reversal trade that had a bigger target than the flag. You could have held on past the flag target for additional gains providing that big red down bar didn't scare you out of the trade.

I might have to start trading individual stocks again, because I seem to make many more boneheaded decisions trading the indexes.

Frustrating

The market has been hard for me to figure out lately, and I haven't been real motivated to post because I've had a hard time pulling money out of it. Today was no exception.

I actually would have made good money today, but when I attempted to short SPY at 10:30, TradeStation said they had no shares available. I tried to substitute DIA instead, and got the same message.

Instead of finding alternatives, I just gave up and sat back and watched. The anticipated plunge at 1:00 ticked me off. I took the first pull back at 2:00 and of course, it went against me. I held on for dear life. I just couldn't believe that the bulls were making a push late in the day. After I couldn't justify holding on for any longer, I bought the stock back, and (of course) just a few minutes later, the stock plummeted.

Frustrating.

I'm bored so here are some links

• Five reasons to avoid gold -- are you reading this Dad?
• Real-time charts for FREE. I'm very impressed with this site!
• Index Indicators
• Money Flows via the Wall Street Journal
• 2 pm in New York--Time to Buy!!
• Did you see the shot that Marcus Denmon from Missouri made yesterday. That was the first time I've seen a shot like that live.
• TraderAm trades 15 minute narrow candles and made 324.5R in 2008!
• Preparing for your trading day

Made some dough

It's a good thing that I didn't go out to lunch today because the best trade of the day came right at lunch time. It's also a trade that saved my buttocks because I was in the hole $1500 bucks until I took it.

I got into the hole early by trying to fade the opening gap. I was a bit over-anxious and got in right after the open hoping that the market would go down and fill the gap. I refused to take a stop loss as the market climbed higher and I nearly doubled the loss that I would have had if I had kept a solid stop-loss in place.

As price continued to climb, I started thinking that we were heading for a trend day and I started buying. I bought on three pullbacks and had made up my loss and more several times as I stubbornly held on. Price eventually crossed the 50 period moving average and bounced along the bottom. I had a chance to get out, but I was so biased to the upside, that again I held on past my stop and ended up losing more.

I was ready to throw in the towel, but thanks to my mentor-ship with Corey Rosenbloom, I saw a nice setup forming (the cradle trade as Corey calls it) as the moving averages crossed. I sold short and held on for dear life as the bottom fell out and the market went down in nearly a straight line.

I exited when price seemed to slow down forming a doji as the move lost momentum. Another pattern that I've learned from Corey is the "three push pattern" where price makes new lows or highs three times in a row, but the price moves are not confirmed by momentum. Often a reversal follows this pattern. I'd say we got one of those reversals today. Holy cow.

The market knows when I go to lunch

I had lunch with a friend today and left while this bull flag pattern was developing. I had even put a Fibonacci retracement on it thinking that it might be a good place to get in. It set up perfectly about 10 minutes after I left with a bounce off of 61.8% and went on to make its target right before I got home. More proof that the market hates me.

I'm such a wimp

I don't think I was alone in expecting this to be a down day. After the massive gap up, I was still doubting this rally--toxic debt relief and all.

I dipped my toe in after the doji at 11:30 (first green arrow) and quickly took my profits at noon. As price flatlined I ran some errands expecting the market to regain some sanity over the lunch hour.

I felt a bit vindicated when I got back as price head downward and started licking the 50 (blue line). I was sure we were headed down and that the trend would end. After the buyers and sellers painted a doji (second green arrow) just above the 50, I started getting uneasy. Should I get in!? Can the buyers push this thing higher!?

My indecision cost me a lot of money as price bounced between the averages and then rocketed upward through the 20 (green line). After that, there wasn't a safe place to get in and we ended the day after a massive trend day up 7.21%.

Once again my bias has cost me a lot of money. I'll probably never learn.

The trading gods hate me

I was able to make my monthly goal during the first few days of March. After an awful February, I thought it would be nice to sit on my winnings and trade with a simulator to test some strategies. I found a strategy that was working very well. Yesterday the strategy was up over 8R.

I decided to do some more testing this morning. The market opened kind of scratchy anyway. So I took several trades to test out how the strategy performed right after the markets opened. I found out it performs quite terribly. After losing a bunch of "sim" cash, I decided to switch back to my real account and take a trade on SPY.

I found out switching was unnecessary, because I was ALREADY USING REAL MONEY!!! I had forgotten to switch the account and took hit after hit using my real account. I felt sick.

The rest of the day was spent trying to earn back what I had lost. This never works, and it didn't work this time. I added another 500 bucks to my losses.

Of course my father called after the market closed. He really doesn't understand what I'm doing as a trader. He asked me how things went for me today because he assumes that whenever the market is up I make a lot of money. I didn't have the guts to tell him that I'm a moron and I lost a bunch of money while I thought I was pretending.

They say a loss hurts much more than a win feels good. They are right.

A trend day that wasn't

It looked like we were going to have another trend day today. I wrote to Corey at Afraid to Trade and lamented that I wasn't playing for a trend day even though the market was having one. He wrote me back and said that he highly doubted that we would end higher--there was just too much against another trend day. He ended the e-mail with, "Got some major confluence overhead that could stop this rally any second now."

As soon as I got his response (about 1:45 EST) the market began its tumble down. That guy knows his stuff.

Despite the day ending lower, there were still opportunities out there for nimble traders. I highlighted the flag patterns that occurred today and met their targets. I also played for a gap fill today. I managed 1R before heading back to break-even.

Consolidate, try not to hate, love your mate

There wasn't much action in the major indexes today as we kind of churned after a huge day yesterday. I did notice a nice bear flag at noon that met its target. I've been playing around with Fibonacci retracements on flags lately, and I've notice that they often provide concrete areas to place stops.

In this instance, there was a nice doji around the 50% retracement that provided a good entry. Placing a stop just beyond the 61.8% retracement would have provided a nice risk/reward ratio.

Let's say you sold short at the 50% retracement ($69.70) and placed your stop 10 cents above the 61.8% retracement at $69.89. That gives you 19 cents of risk.

The trade worked out and your exit would have been at $69.15 giving you a 55 cent profit or 2.89 times your original risk (of 19 cents).

Finally!

For those of you who enjoy seeing the market go up, today was your day. It's nice to have some good news once and awhile.

This was a trend day, but it was difficult for me to trade. I was chomping at the bit after the opening gap of over $1, but I couldn't find a decent place to enter. I took a trade on the first pullback of the day (first green circle), but I had a hard time finding a decent place to put my stop after that huge run up.

I ended up placing it below the low of the day, right at the 50EMA. The market was already up 250 points at that point, so I didn't feel like there was a lot of upward potential left, especially with the size of my stop.

We drifted into two periods of consolidation that each lasted a long time. After the first consolidation we broke through at noon with some huge volume and I thought we were off to the races. But price couldn't break though the highs of the day and continued to bounce up and down along that channel until the final leg of the day began at 3pm.

I was tempted to call it quits as price broke the 50EMA. Fortunately, it didn't stay below it too long, and I finally made some decent money by the end of the day.

Any of the green circles were decent places to take trades today (in my opinion). I took two of those trades. If you were smart enough to buy right after the opening gap, you had a tremendous day--congratulations!!

Is this the bottom?

Visit Isthisthebottom.com for answers about whether it is time to call the bottom and jump into the market.

DinosaurTrader linked to a site with some excellent articles and charts dshort.com. Check out this cool Bear Market chart they posted:
For those of you who have friends and relatives who think you are just "gambling" when you trade, here's a site that allows you to do just that--bet on stocks--RawTrader.com.

Trend Day (I missed it)

Except for the little bump at the end of the day this was a perfect trend day. Unfortunately, I was hesitant to trade it and I lost out. I've circled the high probability trades (shorting). I took the pullback in the third red circle and held until the end of the day for a wimpy 1R gain. I wish I had taken those three dojis just after the open and held on all day with a nice big position.

I've made decent money this week, and after blowing good gains on several Thursdays and Fridays, I was reluctant to risk too much. Oh well, at least I didn't lose my shirt today.

Is this market a mess, or what? It's crazy for me to think that I made my first short trade only 6 months ago.

Trend Day (Almost)

One type of trading that I've been working on for the last few months is a "trend day" in DIA. I've had real trouble trading trend days because I second guess every decision and usually end up making a whole host of mistakes.

I nearly blew my chances again today at about 1:10pm where DIA's price dropped down to the 200 SMA (red line). I had a stop set just above the 200, but fortunately after my 4th entry of the day, I cancelled the stop order to add the additonal shares I had purchased. Price dropped quickly through my previous stop and I watched as my dialy positions dropped to -$2000. I held on and after price formed that nice little hammer, I set the stop under the 200. Fortunately the price climbed from there.

I got spooked at 3pm when volume surged and price formed the bearish hammer, and I dumped all my shares. I was regretting my decision a few bars later, but the drop at the end of the day through both the 20 and 50 period moving averages made me feel glad that I had dumped my shares when I did.

Corey Rosenbloom on Andrew Horowitz

Corey at Afraid to Trade was recognized today for his diligent (some say "insane") work on and understanding of Elliot Wave Theory on Andrew Horowitz's blog The Disciplined Investor.

After the article was published (you can read it here), Corey told me that his blog was inundated with traffic and he and his web team had to work hard to keep the blog from crashing. It was down for a bit, but they have got it up and running again.

Corey has been a mentor and advisor to me over the last 8 months, and although his knowledge goes way beyond what I can fully comprehend, he has been able to dumb down many market concepts. I even kind of understand Elliot Wave Theory.

I would encourage anyone who is interested in trading for a living to seek out someone who is doing it. Anyone who has survived this past year is a good start. Many bloggers offer their services for ridiculously inexpensive rates. I have consulted one on one with successful traders who charge me less than the guy who fixes my car. I've been able to transform the money I paid for trading education into winning trades that paid for my education in a day or two.

So get out there and find someone who can teach you the ropes of this difficult profession called "trading". I think Corey still offers mentoring opportunities, but you might have to hurry as he becomes more well known.

Two decent trades today

My first trade was a gap fade on DIA. I wimped out and got out before it met its target for a decent (1.4R) gain.

The rest of the day was pretty choppy so I stayed out and traded EQ's narrow 30 minute candle. I placed a stop above the candle (orange dotted line) with plans to sell at the lows of the day near the close. I wimped out on this one two as price moved up and I jumped out. If I would have held until the end of the day I would have made 3.32R. I made about half that.

Frustrating

What a frustrating day. After the gap didn't fill, I went long on DIA only to be quickly stopped out with a stab beneath the 50 EMA. Then price formed a nice bear flag at 12:00 (first set of blue dotted lines) and I attempted to short and was told that the stock wasn't easy to borrow by my broker. A stock that trades 31 million shares in the day and it isn't easy to borrow?!!

I assumed it was a glitch and watched as the bear flag met its target. Price then set up another bear flag and I attempted to short it. Same message. I couldn't short it. Again the flag met its target as I sat idly by.

I then switched to SPY hoping to trade the next bear flag setup (I was pushing it with three in a row--that's pretty rare). I set my stop way too close to the 50EMA and barely stopped out as the 50 was breached for a moment. DANG IT!!

I immediately shorted again when SPY formed a couple of dojis near the 50 (first blue arrow). Price took a dive, just as predicted, but I was too bothered by my other trades and I move my stop to break even so that I wouldn't lose any more money.

Of course the price bounced off the 200 MA, came back up, took out my stop, formed a doji and then headed hard down. I was too exasperated with my losses to take the best trade of the day that would have made all my losses back (and more).

I'll need to pick myself up and brush myself off and see if I can do better tomorrow. The Office is on tonight, and that show usually seems to boost my spirits. I hope your day went better than mine.

A one trade a year system

If anyone out there has a system that picks stocks like these the day before, I'd be interested in hearing a bit about it. This one would have made my decade.

Trading 30 minute candles in conjunction with 5 minute charts

I love trading narrow 30 minute candles for several reasons:

1. They provide huge risk to return ratios.
2. They don't require constant monitoring.
3. You can easily set up a "bracket trade" and let the market do its magic.
4. They provide a narrow 2 to 3 hour time frame for trading entries.
5. It can be much easier to spot a trend on a 30 minute chart.

I've learned that trading 30 minute candles indiscriminately, however, doesn't provide a trading edge. There are hundreds of stocks that paint narrow 30 minute candles every day. Very few of them go on to provide a nice profit.

But, by combining 30 minute candles with other time frames can provide an extremely probable and profitable setup that's hard to beat. Let's look at an example from today on MOS.
The narrow candle at 11:00 provides a great entry point. If you placed your stop right above the candle (red dotted line at $43) and sold short when the 11:30 candle broke down below the close of the 11am candle (orange dotted line at $42.40) you would have risked 60 cents per share ($43.00-$42.40). Holding on to your MOS trade until the end of the day (about $35.95) would have made you $6.45 per share. That's 10.75 times your risk ($42.40-$35.95)! Risking $1,000 on the trade would have made you $10,750. Nice.

Let's look at the 5 minute chart to see if there are any clues that this is a decent trade.
At the exact entry point in our 30 minute chart, the 5 minute chart shows two edges--a bollinger band break and a moving average crossover right at yesterday's closing price. To manage risk you could use the 5 minute chart to trail your stop along the 50 EMA. If you are more agressive, you could just leave your stop all day. I like to move my stop to break-even as soon as the stock has made 1 times my risk (in the case of MOS 60 cents).

Using multiple time frames (you don't have to get fancy) can really boost your confidence and help you see trades that may need some confirmation before you take the plunge. In the case of 30 minute narrow candle trading, the 5 minute chart confirms the 30 minute chart giving us a high probability trade with huge returns and little risk.

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.