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I found myself thinking today about something surprising I learned once from a seasoned trader.  A member had asked if the trader had ever day-traded his own account.  My trading buddy and I who witnessed the exchange were surprised to learn that, not only had the trader never traded his own money; he said he didn’t think he would have the nerve to take on the risk of even doing so.  I was stunned.

I have only been day-trading for the better part of three years.  Over the last two years, it has been the primary way that I make a living…  You know, earning an income; putting food on the table, paying the bills, etc.  I don’t know why, but I just presumed that professional traders working on Wall Street  (or Englewood Cliffs)  earning big salaries, bonuses, equity opportunities, and the like, got to that level of accomplishment because they had proven track records doing what I am doing day in and day out.  But apparently that is not necessarily the case.

 I don’t mean to diminish the qualifications of professional traders, nor suggest they deserve any less regard.  I was just surprised.  And I realize that I don’t have the personal experience of the pressure that surely must come from being accountable for trading the boss’s book.  Especially if the boss can be a bit excitable.  But once in a while, on days like today when I recall that original revelation, I find myself pondering the additional psychological and emotional challenges that I face by putting my own money on the table.  I believe that it must compound the complexities of balancing risk with reward as I enter and exit trades, subtracting the commissions, and compiling profits and losses into what becomes my family’s net income.

 As my teacher points out, day trading can be The World’s Greatest Business; I get to be my own boss, choose my own hours, and work where I please (and only if I please!), deal with zero politics, and many other benefits and advantages.  But I also remind myself from time to time that when you “only get to eat what you kill,” it is important to keep your powder dry.  And it sometimes makes me wonder if the priority I have learned to give to protecting my capital is held as nearly as dearly by those who trade only Other People’s Money.

Celebrating the Year of the Wabbit!

Getting Back Into Shape

I hurt my knee.  Actually, I am getting old and the daily jogging that used to be regular exercise is now more wear and tear than my knee can endure for more than a couple of days.  And that convenient excuse provided sufficient rationalization to neglect my commitment to a necessarily healthier lifestyle.  As I mentioned; I am getting old.  But alas, the constraints of my wardrobe have forced me to acknowledge that even my best efforts to control diet are insufficient; there is just no substitute for the regular, consistent practice of healthy habits.  So this week I am back to regular, daily exercise with the “knee-friendly” NordicTrack to fulfill the objective to restore a more active metabolism.

Likewise, this week, I have returned to the regular, daily practice of trading the stock market.  Over the last couple of months I have been engaged full-time in pursuit of a new opportunity that presented itself unexpectedly.  Now that it has run its course, I am free again to focus my time and energy on buying and selling stocks for a living; my third occupation, having evolved from an avocation to, a passion, and finally emerging as a vocation.

But like many things that we aspire to do well, a commitment of conscious deliberation and preparation, along with consistent, regular practice and execution is required.  And so I have begun the effort to get my trading “back into shape,” and towards that end, have resumed the regular, consistent practice of engagement with the trading community of Hedge Fund Live.  I am still a bit rusty, but already enthused and renewed by my reacquaintance with the previously familiar, and excited by the new and evolving facets and faces of the site, webcasts, and resources.

Limericks for Traders

THE RETIREE                                                             REAL ESTATE BROKER FROM QUEENS

A retiree who moved to New York                            A real estate broker from Queens
From Chicago short bellies of pork                         Was leveraged beyond all his means.
Lost all that he had                                                     But the President’s plan
In a squeeze that went bad                                       To tax farmers land
And decided to go back to work.                               Left him nothing but subject to liens.

                                                    PUT TO THE TRUCK

It was time for the High Holidays                               A fellow quite down on his luck
And the Futures just could not be swayed               Awaited his option be struck.
The volume was low                                                     It was Put him instead
And the trading too slow                                              And his wager was dead.
So lunch took the rest of the day.                               So now he is driving a truck.

TRUCK CALL                                                                PRESIDENT MOVES MARKET

That fellow out driving his truck                                 When the President decided to speak
Felt like he had been such a schmuck                    The stock market stared to freak
Till the Call he desired                                                 It fell like a rock
Was soon after acquired                                             As we sold off our stock
And he finally fell into big bucks.                                Because everything sounded so bleak.


Déjà Vu All Over Again, Yogi

They say the third time is the charm…  However, I have also heard that three on a match is bad luck.  The polarity of those alternatives makes me leery about trying to predict the likely price action of the Market going into Wednesday’s Close.  But, I must admit, the temptation to trade in anticipation of a repeat performance might be compelling!

Over the last two trading days, the price action of the S&P 500 has been eerily similar the final few minutes going into the close.  The Two Minute chart below covers the last 90 minutes of trading Monday, and continues to display Tuesday’s entire trading day right into the Close.  The chart illustrates the pronounced downtrend that ended Monday’s trading and continued at Tuesday’s Open.  It will be interesting to see if Tuesday’s similar closing selloff likewise continues at the Open on Wednesday.

It will be even more interesting to see what happens going into the Wednesday Close.  It could be an opportunity to take a position in advance of the potential retracement.  Have we seen the foretelling of another closing downtrend?  Nostradamus might consider us charmed.  On the other hand, would we be tempting fate, and the methodical precision of a sniper lurking in the unknown?

Eleven Dollars and Change

My Trading Plan today was to improve my position size in order to increase my profits.  I thought that the best defense against the challenges of a low volume Market was a good offense – To bring size to bear against lethargic price action.  I came to the battle with two caveats in mind that I learned from my mentor, the former Head Trader at Hedge Fund Live.  First, his golden rule: “You must have more shares when you are right and fewer shares when you are wrong.”  Secondly, the priority he insisted we give to preserving capital must always be paramount.  With those in mind, I came to work this morning intent on improving my performance at scaling-in as my chief strategy to upgrade my position size on trades that gave me the possibility of a significant RRR – Risk / Return Ratio.

 For perspective, let me share that my typical entry size to take a position in John Deere (DE) is 200 shares, Visa (V) similarly is 100-200 shares – although a comparably priced stock, I am much more familiar and therefore more comfortable trading DE than V, hence the greater conservatism in the initial size of the latter.  Likewise, Mosaic (MOS) is a stock I monitor, but seldom trade, preferring instead the more familiar Potash (POT).  However, with the price of POT skewed in my own perspective from the recent influence of acquisition speculation, today I chose instead to trade MOS when the opportunity presented itself.  Coincidentally, MOS is another sixty-dollar stock where I would take an initial position of 100-200 shares, depending upon my comfort level at the time with this also less familiar name.  Typically, if I am able to scale in at all to increase my initial position size, I seldom am able to do more than double the initial position.  My goal today was to overcome that limitation.

 Although I realize there were many good trading opportunities today, my own sense during the day was that the volume was “Low & Slow” and I was struggling to find entry points I thought suitable to take initial positions.  However, when I did, I found success today sticking to my Trading Plan, and carefully, but decisively; scaling-in to larger position sizes that would provide an opportunity to profit quickly if the trade would move ten cents or more in my favor.  In four separate trades today, I established positions considerably larger than had been past practice;  1,000 shares of MOS, two trades of DE, one of 600 shares long and another of 800 shares short, and ended my day with a 400 share position in V.

 Throughout the day, I was never more profitable than a Net $60 after fees and commissions, but was never once negative on the day, thus preserving my capital.  Although I ended the day with a Net Profit of only eleven dollars and some change, the “change” in my discipline to CAREFULLY grow my positions through scaling-in improved the POSSIBILITY of hitting my $200 goal for the day, in spite of the challenges of traversing a low-volume environment.  Although today’s success reflected little Net Profit, I am confident the progress I made in my trading mentality will provide rewards that will compound over, and over, again.  I may have only made eleven dollars toady, but the change in my trading style is a lesson that will add up to significant profit improvement over time.

President Obama is Wrong

Some 20 years ago or so, Mike Darcy from Human Resources once told me something I remembered the remainder of my corporate career…  “The boss might not always be right…  But he is always the boss.”  It is probably just a pet peeve of mine, but I think that as the political season heats up, it is constructive to try to maintain some similar perspective on the President of the United States.

 As the enthusiasm, leading into November 2nd, gives rise to strong opinions of support or opposition to one party or another, we need to respect one another and the institutions that belong to us, the American people.  Regardless of how one feels about a particular president, it is always important to me to remember to respect the Office.  I may not agree with the President’s policies or politics, but I always remember to respect the office that we have entrusted to him or her for temporary stewardship.

 So, whether it is Bush, or Obama, Reagan or Clinton, or whomever; it is important to me to reference him as President Obama, rather than the overly familiar “Obama.”  After all, he may not always be right, but he is always the President.

I Shall Miss My Old Friend

Today I reflect upon the loss of a familiar symbol in my life, as I contemplate similar changes that surely must be upon the horizon.

 Oil Inventories came out at 10:30 today, as is their weekly custom.  Once upon a time, it was exciting for me as I carefully monitored XTO Energy (XTO), more influenced by similar weekly pronouncements of natural gas reserves, but nonetheless, influenced by fluctuations in supply and demand for crude oil as well.  Back then, I traded the stock almost daily, familiar with the patterns of the price action coming into “The Number,” and reactions to surprises and disappointments when expectations collided with announcement.  XTO and I were like old friends.  I knew what to expect of him in up markets and in down.  We were comfortable with one another’s company and shared some common anticipation, fear, and jubilation during the time we spent together.  I learned a lot from my old colleague who helped me profit in my new vocation.

 But, that was then and this is now.  He is gone, leaving me abruptly abandoned with neither my consent nor consultation.  Absorbed into Exxon Mobil (XOM), leaving me alone and disconcerted, unsure of how to assuage the anticipation that still swells when Sharon Epperson ushers in the weekly inventory number on CNBC.  I have lost my personal connection to the relevance of the broadcast, and shift uncomfortably in my chair wondering if it deserves my continuing loyalty.

 So today, I decide to let my reminiscence fade into a grateful memory of good times gone by, and look forward toward new opportunities and possibilities I have yet to realize and appreciate.  With deference to, and wisdom gained knowing “what’s past is prologue,” I bid ado to XTO, and choose to embrace Schlumberger (SLB) and the matrix of opportunities he promises we will share together.  SLB’s muted reaction today to Sharon’s bearish excess capacity pronouncement notwithstanding, the prospect of what lies ahead remains alluring.  It is a brave new world that I must embrace without the support of the familiar.

Therefore, in spite of the transformation thrust upon me against my better judgment, I welcome it with anticipation and enthusiasm, allowing the future a fair chance to demonstrate itself worthy of continuing loyalty.

 Nevertheless, I shall miss my old friend.

Sleeping With The Boss

It’s a quiet, sleepy August afternoon of Low & Slow Market action…– Low Volume and Slow moves in a nearly trendless direction.  But at least we have The Boss - Bruce Springsteen playing on radio Hedge Fund Live - WHFL… and the crew is keeping their color comments to a minimum so we can enjoy the music…  IF we can stay awake!

Learning to Profit from Technical Analysis

During a retracement to the upside yesterday John Deere (DE) offered two opportunities to make profitable trades from technical analysis of moving averages and pivot points.  The price was rising with a general rally in the Market although the stock was on an S4 Sell Signal.  As it approached the S3 Buy Signal at 65.42 (green line below), pressure was building as the 20 Day Simple Moving Average (SMA) climbed towards the 200 Day SMA.  The two moving averages formed a gauntlet converging near the S3 Buy Pivot.  Freshman Trader Zach recognized and broadcast a Low Risk Sell opportunity just after 2:30 PM.  DE struggled with the resistance at the S3 Pivot, and then suddenly retraced twenty cents to the down side, just as Zach had suggested it might, finding support at the 20 day Simple Moving Average (SMA).  The opportunity was brief, and swift.  However, taking advantage of a larger sized position with a tight stop and using the first identifiable level of support for an Exit, was a good opportunity for a quick and profitable scalp.

 A few minutes later, DE tested the S3 Pivot again, this time successfully confirming the change of Signal from Sell to Buy, trading convincing volume around 65.50, eight cents above the R3 Pivot.  Price action was squeezed between the 20 SMA support and 200 SMA resistance, indicating another possible Buy confirmation if the 20 SMA would cross the longer term SMA.  The Pivot provided predictable support as the price momentum faded briefly, offering an Entry opportunity for a small position now to the Long side, on the brief pull back around 3:00 PM.  The subsequent resumption of the uptrend offered opportunities to Scale-In to a full sized position, offering profits to near the 66.00 figure after a fifty cent run in the stock price.  Over a 40-minute period, technical analysis of the Pivots and Moving Averages provided two opportunities to put profits in your pocket.  You can learn this simple, straightforward method of technical analysis the same way I did.  See the eLearning section of the Hedge Fund LIVE web site for lessons from the Head Trader on how to leverage similar opportunities to improve your trading.