Trading – Bobby's Trade Journal

New Year, New Trading Resolutions

So the new year has officially started with the market running on the 2nd. This late rally can be called many things. Bear market rally, Santa Clause Rally, January Effect, and other names involving existing or non existing characters. That means it unclear which way the markets will trend. If they’ll trend, that is. The market may just stay in a range for a little while before defining a direction.

This means to a daytrader that they will have to start monitoring closely to see if the market is range bound or starting a trend. Depending on that, a daytrader will have to use the correct strategy.

Additionally, many securities are running on their own a little and not mirroring the DOW. Which is good and bad. It’s good for those that may find a good trend and benefit. It’s bad, because it may not help identify a trend early enough.

Leaving all the market stuff aside, it’s a good time at the beginning of the year to sit down and make some trading decisions. The last year has been educational. I will be refining my trading rules and will be defining a clear risk management strategy for my trading in the coming year.

Technical Indicators That Don’t Work – RSI

Technical indicators are what really helps in technical analysis in a chart for a security or commodity or ETF, etc. However, some indicators are more helpful than others based on the person using them. Some indicators might be better suited to a certain style of trading vs another style of trading. Some might be more for investing analysis. The RSI is an oscillator for showing overbought and oversold conditions. However, it normally doesn’t really mean all that much to see something in overbought territory. Sometimes, prices stay in overbought territory for along time. Or even in oversold territory.

If you think that using an indicator will really enhance your technical analysis and it will really help you determine the correct entry price and exit price, then your mistaken. An indicator by itself cannot do that. It can contribute to that decision. But it cannot decidedly tell you the specifics of your next trade. It can help you a little in which side of the price you want to be on. When more indicators are used, it can seem to solidify your position in entering a trade or exiting a trade only to prove that wrong after you’ve entered the trade.

Anyway, this is nothing new. it’s an well known item. Consider this just the ramblings of a bored trader. Personally, I am just not seeing the kinda of performance I’d like to see from the RSI indicator. Thinking about switching to using Full Stochastics with MACD.

U.S. Markets Bottoming Out?

http://www.reuters.com/article/vcCandidateFeed2/idUSTRE4B61FB20081207

This week, Legg Mason’s Bill Miller, a celebrated value investor but whose stock picking is far off the mark this year, said the “bottom has been made” in U.S. equities, and forecast opportunities for strong gains once markets rally.

Miller said that all long-term investors believe that stocks today are cheap, but credit markets must regain health before equity markets can rally. It “looks as if the bottom has been made” in U.S. stocks, said Miller, who runs Legg Mason’s $7.6 billion Value Trust fund.

At the Reuters Investment Outlook Summit this week, 15 prominent portfolio managers including legendary hedge fund investor and philanthropist Michael Steinhardt will discuss if U.S. stocks have indeed hit bottom.

So it would seem that many large investors are starting to think this is either the bottom or bottom is in sight soon. I have also been thinking, based on the divergences, for a while now that the DOW has been signalling buy. However, to make money from that, one would have to buy and hold. Investing is the right thing for this time of markets. Daytrading requires a different strategy. One must find daily movements and make use of those.

The past month of real trading has been an eye opener for me. I have really realized that daytrading stocks and options are really different. The stocks can be held for profit if the trade goes against you a little. The options simply keep losing money. So with each passing day, the underlying security must make a more drastic move than the day before for the options to show profit.

Entered Two Live Trades

Well, looking at the yesterday’s red candle and today’s little rally, it was sounding as if my guess from yesterday was somewhat true. I guessed that market would go up in the morning then go lower later on. Once the market was at 200 points, it slowed. So I entered two trades to the short side. Bought one AAPL put and 2 BAC Puts. Was slightly up during the late afternoon but towards the end of the day, due to the rally, I’m down a little.

1 AAPL Dec. 79 PUT at .97.

2 BAC Dec. 7.50 PUTs at .19.

Let’s see how this works. Forgetting the DOW divergence that i’ve been seeing for days, this is the current market trend. Up down up down. Once way too much then corrects. But it hasn’t really ever moved down one and then corrected itself the next day. It has recently gone down 3-4 or even 5-6 days before correcting back for 2-3 days. So after a 700 pt drop, it would seem ok for it to go up 200 points and then resume temporary downward move.

In the long run investors could already buy good companies at these prices and forget about them for a while. But what is a good company? Comapnies that used to be good aren’t really great now. They’re all showing crashes and crisis.

Better to wait a little more.

What are ETFs?

ETFs are exchange-traded-funds. The best place to get information is investopedia.com. An exchange traded fund tracks an index, commodity, or a basket of assets like an index fund. This explanation is from investopedia.

To explain it a little, an ETF trades like a stock on an exchange. You buy/sell the ETF just like you buy/sell a stock thru your broker. You use the same tools. You chart the ETF. You analyze the technical indicators, and you can also trade options on the ETF. It depends on the ETF, but most have option chains.

So how does it help you?

Very good question. First remember that an ETF can track an index or a commodity or a basket of assets. So you can have an ETF that tracks gold. Or tracks silver. If you hear from your friend that gold is spiking really nicely lately and you verify that thru your analysis then you have two options if you decide to be long on gold.

Go down to the local store and buy some gold coins.
Login to your brokers site and buy the ETF that tracks gold – GLD.

Here’s how Ameritrade’s explanation of this ETF reads:

The investment seeks to strive to reflect the performance of the price of gold bullion, less the Trust’s expenses. The Trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the Trust terminates and liquidates its assets, or as otherwise required by law or regulation. The Trust is not managed like an active investment vehicle, and it’s not registered as an investment company under the Investment Company Act of 1940

That’s good because now instead of constantly making trips down to a physical shop with your gold coins, you simply buy/sell online thru your broker. Similarly, you can buy/sell silver and other commodities.

That’s an example of an ETF that tracks a commodity. What about one that tracks an index? Fret not!

If you see that S&P 500 Index is uptrending and you wish you could just ride the index as opposed to figuring out which stocks in the index are doing good or which stocks in general are doing good, then you could simply trade the ETF SPY. This ETFs seeks to duplicate S&P 500 Index’s performance. You can trade options on SPY bigger leverage.

So it benefits you by knowing that when an index is doing well, you can buy the ETF tracking the index’s performance. It won’t make you rich overnight. Consider that an index may fall 500 points but that’s typically 2-3% move. Options will give you bigger leverage.

Trading ETFs by definition doesn’t give you a big benefit in % returns. But it gives you a benefit in not having to guess the direction of your holdings. You can daytrade the ETF like any other stock for small or big gains.

You can trade options and daytrade options on ETFs also.

Market Analysis – Nov. 21st

So looking at the current situation of the market, it might not be such a bad idea to be long. The market is near its long time low.

RSI is making lows at the same level. MACD is making higher lows. CMF making higher lows. If we have a close above 80, it would nice. But a close over 86 would be higher than the previous two candles. It would be a very bullish signal. Might be more likely to see it closing above 80. I’d be thinking of possibly getting some calls. Dec 85 SPY calls would be decent. But also expensive. Can only afford Dec 90. Those are too far out of the money. SPY could certainly see 90 before the end of Dec. but it’s a long way to go and time decay would also start factoring in.

Market Recap – Nov. 21st.

So you, the reader, might be wondering why I post the market analysis on here with the market performance for the day. This is normally not an analysis but more of a recap of the days market direction. The main reason is because this is my trade journal and I want to look back as many days as I’d like and see what the DOW and the market did and how far it fell or rose.

Additionally, there’s no other place that will archive it in numbers. Sure you can look at the daily chart on the stockcharts.com site of many other site, but you can see the exact numbers nicely listed.

Anyway, it was a sudden move towards the end of the day. If I had held my position it would have been a nice profit for that effort. But from the normal events of the day, it just seemed those options would expire and the entire premium would be lost. So I thought to just sell at loss. And then it rallies. Oh well, next time, I’ll just hold. Additionaly, being expiration day didn’t help.

I’ve gotten good advice on how to daytrade. I will follow it as much as possible.

Today Was a Weird Day!

Today was truly crazy. I had bought some Nov 230 SRS Puts. They were supposed to go up all day. But they took a serious beating. A serious beating. The market kept falling all day. And so did the SRS puts. For those that don’t know what SRS is, it’s a ProShares ETF. Corresponds to the real estate sector and trades as the inverse of DOW. So when the DOW is up, SRS is down and vice versa. So Puts on the SRS will be profitable if SRS goes down. In other words the Puts would be profitable if DOW rises.

After many days of beating, the DOW was due for a rise. It was rising but kept falling. SRS kept rising and making higher highs. This meant the PUTs were at 0 at one point.

Then finally in the last 15 minutes the puts went from .1 to 11. That’s a 99% increase! Oh well! I had already sold my position at a loss after the first time the bid showed $0.

So I’ve decided to take this a little more seriously. I will try to trade more ProShares and more ETFs if possible. I have so far lost $1400 in the market. Hardly, the serious type of loss that many many traders have suffered. Hopefully, heeding the warning by other traders and using my practice accounts’ experience, I can try to do better.

I will be trading with a $100 that I have left in the account. May not mean much to anyone. But I’d rather try to see if I can make this go to $500. Until I either lose this or reach $500, I will try not to fund the account anymore. I have refined the rules more and will update them soon.

UltraShorts – What are they?

What are these UltraShorts? Are these some kind of stocks, bonds, derivatives, etc? Or are these just regular shorts made out of jeans?

Well, the Ultrashorts are sort of a fund that go in the opposite direction of the underlying Index. I will give a brief explanation below, however, you shoudl read ProShares site to get more details.

In short, the ProShares are ETFs that are designed to be traded like any stock using any brokerage. These are funds that go in the opposite direction of the underlying index. There are Short ProShares and then Ultra Short ProShares. Short ProShares are designed to go up when the index goes down and vice versa. Ultra Shorts are designed to give double yield. Hence, the Ultra part.

Examples:

Short Dow30^SM

This will go against the DOW movement. So on down days, you buy this and expect it to go higher.

UltraShort Dow30^SM

Others shorts/ultrashorts: QID (Nasdag 100 UltraShort), PSQ (Nasdag 100 Short).

So these shorts provide for a generic way to trade the market/index itself as opposed to trading a given stock which may or may not be trading along with your index.

Market Analysis – Nov 10th.

Well, the market went up in the morning but couldn’t just take all the bad news. Circuit City is doing under financially. It is not known yet, if the company will make it out of bankruptcy. Most companies do not make it out. Then there is GM. They are asking for money. They are almost as good as bankrupt. Not quite, but almost. They’re saying that they do not have operating funds for the next year. Some one said, this is the best time to buy GM. Nope! Why would you spend your money when:

It doesn’t go to GM, so doesn’t help them.
The company is going bankrupt. If they come back the stock will be different. This stock will be worthless.
The desperate need for help hasn’t been met with a definite help promise.

Then some investors fear the China deal for their financial package is not good enough and will let the Chinese economy crash as well as the rest of the ones that are crashing. Lot of red numbers!

Tomorrow, seems to be set to go up a little. However, someone said the job reports and other numbers come out tomorrow. If those aren’t nice, it might be Wednesday before we see a green day.