Rewind: Memorable Posts from September 2006

Over the next few weeks I will highlight some memorable posts going back to the blog inception. I hope to use this series of posts as a primer for those new to the site. Here are posts from the site's first month, September 2006.

Who is the Market Speculator?

Nice call on BOOM. This short was good for 10 points before resuming uptrend.

I have become much better at not "micro-managing" my trades.

I mentioned shorting NUVO at around $19. It is now trading at $2.

(Side topic: Study broken fad stocks. You can make a living learning how to play these. A current fad stock that I predict will one day trade at $2--CROX. Note that doesn't mean it will happen now. Fad stocks can sustain upside longer than we think possible. However, they almost all eventually die miserable deaths.)

Hilarious clip of the "bear on wall street".

My thoughts and personal experience with Trading and Sports Psychology

My thoughts on Trading and Failure.

Great Livermore quote on confidence. You need it as a trader. A lot of what I do goes against conventional wisdom, which takes much courage and confidence. It's the only way to seperate yourself from the herd.

A Historic Day of Profits for the Speculator

I sold 200 shares of POT at $150.10 (entry at $138.14) for a $2392 gain (+8.6%).

I sold the remaining 150 shares of CF at 118.34 (entry at $92.05) for a $3943 gain (+28.5%)

I sold 150 shares of AAPL at $202.15 (entry at $179.80) for a $3352 gain (+12.2%).

I sold 100 shares of RIG at $148.74 (entry at $132) for a $1674 gain (+12.6%).

I sold 100 shares of FSLR at $281.21 (entry at $235.25) for a $4596 gain (+19.5%).

I sold 150 shares of MBT at $98.97 (entry at $93.03) for a $891 gain (+6.3%).

I am still holding a few positions, but have cleared out much of my account. Today is one of the best trading days I have ever had, and I have to say, it's a relief. I was trading on full margin. I had thought about taking partial profits on a few of these trades, but decided against it since we've had such a nice run and most reached my targets.

As you can see from my gains, don't let anybody tell you it's not wise to trade over the holiday. If you know how to pick the right momo stocks, it can be a very profitable period.

To view trade entries, click the "trade" label below.

Today's Trades: POT and GS

I bought 200 POT at $138.14. Nice cup and handle breakout. I would have liked to enter in the $135-136 range, but I don't want to chance missing out if the year end rally continues.

I went short 100 shares of GS at $213.78. My stop is above the 50 day moving average, around $225. I would take partial profits at $200.

Holiday Postings

It's been a great holiday season so far. Besides the December profits, I've been able to enjoy some of my favorite past times, reading and sports. I've read 11 books this month, which is probably the most I've read in one month since the summer before law school. On top of that, I've played basketball twice a week and ping pong almost every day. To make this holiday even better, we got a nice dusting of snow today, the family went out sledding, and I finally joined the ranks of iPod owners.

I will likely spend the rest of 2007 reflecting on this past year, going over my 2008 resolution and loading the Ipod full of cool songs, shows and videos. My postings may be a little more sporadic than normal, but I do plan to post and do some light trading. Keep an eye out for updates.

Those of you who haven't already, check out the new Dark Knight (Batman) trailer. I was skeptical when Heath Ledger was named to play Joker, but looks like he nailed it. His portrayal of Joker is off the chain.

Catching a Breakout Early: CF Trade

On Tuesday I bought 300 shares of CF at $92.05. Today the stock broke out over resistance at around $100 and closed at $107.76. I sold half my position near the close at $107.34 for a $2293 gain (+16.6%). I am holding 150 shares and will buy more on a pullback to $100, if it's orderly and on weak volume. I've moved my stop on the remaining shares to $97.

As expected, I received a number of emails today. Arthur's is representative of the bunch:

Can you tell me why you entered this trade. I have looked at all of your recent trades and I am having trouble figuring out your entry points. It amazes me that you continually pick big winners just before they break out. You are either a great trader or you are very lucky.

I am hesitant to call myself a great trader, and I certainly do not believe in luck. I firmly believe that those who are lucky put themselves in the position to receive what seems to be luck. I'm not talking "The Secret" self help bullshit here. What I mean by putting yourself in position with regards to trading is undergoing the hard work of understanding markets, your system/setup/edge and risk/reward.

Let me get specific about the CF trade. First, let's look at the overall market. Early this week, I was looking to increase my long exposure, while still maintaining a healthy dose of shorts. While I do think the market is headed down, I also thought we would get a bounce going into the holiday since the market was so oversold and we had a historical trend on our side (Christmas/end of year).

I do not like to play bounces in broken stocks, so I was looking for strong momo stocks to play. One sector full of momentum plays is Ag. I've been looking to get long and ag related for a while now. CF, MON, MOS and AGU all looked attractive, but I went with CF because I liked the volume pattern and a cup and handle seemed to be forming. My target was $90-92, which was at the bottom of the basing pattern and would give me a good risk reward (stop would be placed under the 50 day at $87).

I am not precise with entries. I don't have to have that perfect entry at $90. Early in my trading career, I missed a lot of big gains trying to be perfect. Now, as long as the reward to risk ratio is acceptable, I'll enter early on a setup that offers an edge.

Unlike many traders, gurus and technicians, I can't give you a precise stochastic reading, fib retracement or precise reason for entry. While I do rely heavily on accumulation/distribution indicators, much of it is just having an intuitive feel for the trade based on experience. For me, it boiled down to the following:

statistical edge that overall market would bounce
strong sector
strong stock within sector
nice chart, price and volume pattern
acceptable reward to risk

That's it. I placed my trade, set my target and stop, waited and "got lucky".

Note: AAPL is up 8 points from my Tuesday entry and RIG is up 4. I took partial profits in both, along with in the DRYS and EXM and housing shorts.

Conquering Fear, a Requirement for Profitable Trading - Part 1

The most destructive element in the human mind is fear. - Dorothy Thompson

Neither a man nor a crowd nor a nation can be trusted to act humanely or think sanely under the influence of a great fear . . . To conquer fear is the beginning of wisdom. - Bertrand Russell

Collective fear stimulates herd instinct, and tends to produce ferocity toward those who are not regarded as members of the herd. - Bertrand Russell

We need not look further than the tragic events of 9-11 to fully understand the meaning of Russell and Dorothy's words. Two weeks after 9-11 my father and I, two of them most westernized Asian-Indian Americans you will ever meet, boarded a flight from Minneapolis to San Francisco. It was the most unpleasant plane rides I have ever taken. The man in our row looked like he was going to have a heart attack when we sat next to him.

While the probability that we were terrorists was on par with being struck by lightening, I still understood the anxiety created by our presence. Even if the probability of an event happening is low, our brains have been wired to fear low probability outcomes if the danger is great enough. After all, one bad judgment and you're minced meat. The harm in fearing the insignificant was small compared to what could happen once disaster struck. Evolutionary Darwinism at it's best.

However, this brilliant evolutionary mechanism has it's downside. Besides the fact that it made my dad and me feel like crap, it can cause the crowd to make unwise decisions. Most of those who supported the Iraq War in its infancy have come to grips with the fact that fear lead them towards an irrational conclusion. The panic that followed from a low probability, yet high impact event made the masses subject to manipulation and self serving propaganda. The course of world history changed because the masses were tricked into supporting irrational decisions influenced by fear.

If fear can cause a nation to act insanely, there's no doubt it can reek havoc on collective markets and individual investors. My biggest leap as a trader was not developing my trading systems. For me, that has come quite easy. No, my epiphany came when I learned how to control fear. I've had the same systems for quite some time, but it was not until I gained control of the fear factor that I became a profitable trader.

Notice that I don't say "eliminate fear". That cannot be done. Thousands of years of evolution can't be eliminated, but we can control the fear impulse by recognizing and not giving in to it. To become profitable, logic must triumph over fear.

One final thought before I sign off. Many traders spend way too much time on the psychological aspects of trading. Remember, the first requirement to trading profits is developing effective trading systems and understanding markets. It is only then that the mental aspect comes into play.

Over the coming weeks, I plan to talk more about fear and trading.

Quick Trade Update

I took small long positions in CF (92.05), AAPL (179.80), FSLR ($235.25) and RIG (132). The first three were so oversold that I decided to buy after they started to bounce off their lows. If we get the holiday bounce everybody is waiting for, these stocks should do quite well.

I used strength to short dryshippers DRYS ($77.13) and EXM (33.75). Both still could move a little higher (in fact, both closed above my short entry), however, the bounce was too good to pass up. They have very "toppy" looking formations.

I can see DRYS testing the 200 day moving average at 60. I am using a loose stop (83). If it breaks above 83, we may see a run to the 50 day moving average at $100 before resuming the downtrend. I don't mind taking the risk of loss considering the possible gain. If I get stopped out at $83, you can bet I'll try again at $100.

I took profits in shorts QID and AKAM.

Today's Trades: CPLA, JASO, FSLR, FCX, PBR

I made a few pilot buys in strong stocks that are dipping today: CPLA (300 shares at $68.95), MBT (150 shares at 93.03).

I exited 300 shares JASO at $70.31 (entry $62.04) for a $2481 gain (+13.2%).

I exited 125 shares FSLR at $239.85 (entry at $223.30) for a $2068 gain (+7.4%). I originally bought 250 shares, and took partial profits last Monday at $247.20 for a $2987 gain. Here is the video I made detailing FSLR.

I covered 200 shares FCX at $98.10 (short at $102.43) for a $866 gain (+4.2%). I am still short 200 shares. I've moved my stop up to entry point and my target is at the old lows, around $90.

I exited 200 shares PBR at $102.10 (entry at $108.62) for a $1304 loss (-6.1%).

I am currently short AKAM, NCTY, QID, DHI, HOV, SKF, and long AAPL, CPLA, MBT. Note that QID and SKF are acutally buys, but I include them as short since they are ultrashort ETFs.

Market Selling Bounces Instead of Buying Dips

With the current state of the market, the prudent thing to do is to sell bounces. We are seeing a change in market character, folks. Remember just a short while ago, when strength beget more strength and dips had to be bought? Those days are behind us, at least for the time being. Now buying dips is a bit more scary.

There are a few stocks I still like on dips: MA, FSLR, RIG, PBR, ag related stocks and a few more momo players. That's about it.

There are plenty of stocks to short on strength. Housing, financials, and broken momentum stocks head the list.

We may still see a holiday run up, so shorting could be a tough go if you are using tight stops. However, it also could provide some great opportunities.

Trade Update, Watchlist, Sport and Politics

I added two shorts yesterday, AKAM and FCX. I also went long PBR, JASO and AAPL.

Here are the stocks I've been keying on from my focus list:

Long: PBR, USO, FLSR, CPLA, AAPL, HDB, MBT, RIG, ATK, MA, MON, MOS, AGU, JASO, AAPL, MTL, RSX, VIP, STP, POT

Short: DRYS, TBSI, DSX, PHM, HOV, FXI, PCU, FCX, AKAM, NCTY, LFC, MER, FRE, TGT, LOW, NILE, GG, RIO

Off-Topic:
Is anybody surprised that a mean, angry old pitcher who posted a 2.30 era at the age of 44 took steroids? I hope the sporting public is as incensed about Clemens as it has been towards Bonds. That might help restore my teetering faith that we live in a color blind society.

Why does nobody care when a football player tests positive for performance enhancing drugs (like defensive star Shawn Merriman), but in baseball it's a national crisis with Congress threatening to step in?

How does a guy like Bobby Petrino get away with his actions? If I were a parent of a kid considering attending Arkansas, there is no way in hell I would let that man coach my son.

I hope the Patriots beat the Jets 100-0. That probably won't be the score, but revenge will definately be sweet.

I can't stand Oprah, but I do hope her followers get out and vote for Obama.

Note to Oprah fans: she hasn't given away shit. When Oprah "gives" cars to her audience, it's Pontiac, not Oprah, you should be thanking.

A tale of two idiots: Huckabee and Romney. I wonder if the combined IQs of those two, plus junior Bush and Giuliani, are equal to that of one Bill Clinton.

Trade Update

I am using today's strength to add a few bearish positions: QID (ultrashort Nasdaq), HOV (homebuilder) and SKF (ultrashort financials).

I have moved my FSLR stop up to around $240. This locks in at least a $2000 gain on the remaining 125 shrares.

I exited 500 shares of URRE at $12.73 (entry at $12.21) for a $260 gain (+4.1%).

Market Note, Trades and Videos

It's still too early to tell if today's market action is the start of a new trend. I am looking to add a short or two, but won't get get heavily short until a trend starts. Today I went short FCX, DHI and NCTY, and they all went in my favor. However, my two new long positions, AGU and JASO, didn't do quite as well (although they still have not broke down below support).

I'm glad that feedback to the video webcasts has been positive. I hope to continue to do one or two of them per week.

Today's Plan

I'm ignoring the fact that today is fed day and just looking for entry prices from my watchlist to get hit. I've already taken a long positiions in JASO and AGU today, and a short position in a homebuilder (I can't remember which one at the moment).

Today's Trades: URRE, NCTY, FSLR

As I said I would in last night's trading video, I exited half my FSLR postion (125 shares) at $247.20 (entry at $223.30) for a $2987 gain (+10.7%). My current position is 125 shares and my stop is at the original entry price.

I bought 500 shares of URRE at $12.21. This stock made my watchlist via a long time reader's suggestion. We have been working on a trading setup over the past month, and this is my first attempt at trading it.

I went short 400 shares of NCTY at $25.78. This is a classic breakout-pullback setup from the short side.

Video: Sticking with the Trade (FSLR)

In todays' video, I detail my current position in FSLR to show how important it is to stick with the trade until your stop or target is hit.

Trades and Performance Stats

Here are trades I've recently made. All entries were posted to the site and can be viewed via the trade label. Entries for these trades were made on or after November 9th, and exited this week. I have completed other trades since the 9th, that were posted on the site. I have not included them here, since this post is only to update exits made this week. This weekend I will have performance stats for all trades since November 1.

I sold 300 shares of PBR at $108.06 (entry at $94.61) for a $4035 gain (+14.2%).

I sold 400 shares of VIP at $38.43 (entry at $34.17) for a $1704 gain (+12.4).

I sold 300 shares of MEE at $35.90 (entry at $30.10) for a $1740 gain (+19.2%).

I sold 200 shares of DE Wednesday at $88.10 (entry at 79.11) for a $1798 gain (+11.4%).

I sold 300 shares of RIG at $133.90 (entry at $126.10) for a $2340 gain (+6.1%).

I covered 300 shares of TBSI at $42.60 (entry at $55.26) for a $3798 gain (+28.6%).

I covered 500 shares of the NOV at $72.72 (short at $69.44) for a $1640 loss (-4.6%).

I covered 300 shares of MER yesterday at $58.10 (short at $54.10) for a $1200 loss (-6.8%).

I covered 300 shares of PGJ at $35.37 (short at $32.55) for a $846 (-8.5%).

I covered 300 shares of LEH at $61.10 (short at $59.73) for a $411 (-2.2%).

I sold 600 shares of QID at $37.75 (entry at $40.26) for a $1506 loss (-6.6%).

I covered 300 shares of AAPL at $181.35 (short at 176.08) for a $1581 loss (-3.1%).

Performance stats for these trades:

Win Rate: 50 percent (6 wins/6 losses)

Total Gains: $15,415
Average Gain: $2,570

Total Losses: $7,184
Average Loss: $1,198

Total Profits: $8,231

Thoughts:
My trade rate was not up to my usual standards, at only fifty percent, so I can't say I'm a happy camper. However, I can take some solace in the profits and risk management. I try to keep my losses small and my wins big, and was able to accomplish that goal.

We can also see that my shorts are what kept the win rate down. All of my losses were from shorts (which includes long QID), and I only had one short win (TBSI). I bet you can guess what I will be working on this weekend.

To view my entries, follow the trade label. I am still holding some stocks I've entered over this period, including DCO, FSLR, LEN (short) and OFG.

FSLR and PBR

I can't say I'm happy with the FSLR trade. On a day like today I would have expected the stock to rally. I thought about bailing today, but decided to honor my stop. Hopefully today's tag of the 20 day moving average will propel it upward.



On a more positive note, PBR is acting just as I had expected.



I plan to update all of my trades from the past few days either tonight or tomorrow afternoon.

Stocks that Should Be on Your Radar

Here are some momo names that should be front and center of your wachlist. I am looking for tradeable entries in:

MTL, POT, HDB, LTRE, RICK, CTRP, DE, CPLA, FSLR, VIP, LDK, MCRS, HMSY, MON, MOS, ISRG, AGU, BIDU, MA, GLDN, RIG, MBT, ATW CF.

Note the abundance of ag related stocks.

Trades: VIP, LEN and FSLR

I bought VIP and FSLR and went short LEN. I tried to go short VMW, but no shares were available for short. I'll detail my reasoning for trades later today.

Judging from my inbox, last night's "not enough to beat the indexes" post seems to have rubbed some of you the wrong way. While I did not mean to offend, it does summarize my aggressive trading mentality.

It's Not Enough to Beat the Indexes

This past weekend I got together with a trading buddy and we were talking performance. Like many are apt to do, he excused average performance with the "but I beat the indexes" cliche.

That is one of my biggest pet peeves. The idea that I could be down three percent but feel good about it because the indexes had done worse is foreign to me. If that is your thought process, I doubt you will ever become an exceptional trader. Sure, you may become a consistently average trader, but is that really why you put in all the time and effort, to be average?

I'm in it to make monster profits. I know the fact that I am an individual investor, who can move in and out of positions with ease, both to the long and short side, gives me a huge advantage. I am not satisfied with average performance, and neither should you.

Quickie Trade Update

I bought PBR, OFG and short NOV.

Sector Review

Here are the top performing sectors last week. There isn't much that has me excited here. Most of them were bounces from some of the worst industries over the past few months, like mortgage, cement and building materials.



One sector I do like is Ag Chemicals.