Thursday, November 30, 2006

No posting until the weekend

Today is my last day at work.  I will be cleaning up some stuff, but I still have some last minute work to do before I can leave.  Plus there has been a big dump of snow in our area, which means lots of shovelling work ahead for me.  Plus we have some guests over for dinner.  Plus I have been pondering customizing my resume for some non-Engineering jobs that look interesting.
I did make a trade in some GOOG options yesterday, and got chopped up.
Unfortunately, I won't have much time to post about this and other trading "things" to this trading journal.  Hopefully by the weekend, I will have time to catch up with everything.

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Tuesday, November 28, 2006

The Power of Uranium - Energy Metals Gets NYSE Listing

I think I mentioned this before. There aren't too many Uranium stocks trading in the American markets. And yet the US Markets continue to be the best place in the world to raise capital. Many of the Canucks realize that, so there's a Canadian Uranium company by the name of Energy Metals who is going to take advantage of this unique situation by listing in the NYSE, and is set to start trading tomorrow. Energy Metals currently trades as EMC on the TSX, but it will have the symbol EMU on the NYSE (because some other silly company already took the ticker EMC - go figure!). Many Canadian Oil and Gas companies also chose to list on the NYSE instead of the NASDAQ. Apparently, what I've heard is that the NYSE is supposed to be a less volatile market. Not sure if this is fact or fiction, perhaps someone can confirm/deny this.
Anyways, it will be very interesting (at least for me) to see how this listing will perform. I see this almost as a barometer of the US market demand for Uranium stocks. It's considered almost to be an IPO. And I noticed a bit of frontrunning took place already today in the Canadian stock ahead of the debut of the American version.

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No American Trades today.

Didn't see any American stocks worth taking a punt on today, so I scalped my old favorite RIM on the TSX for about $60 in profits until I had to goto work. Of course, as it turns out, I would have done better if I had just held RIM through to market close, but I felt it was just too risky, especially in these choppy waters.
And how about those first 45minutes this morning? Looks to me like both longs and shorts got toasted in this morning's session.

I don't see any clear market direction right now. Today and yesterday's move looks an awfully lot like the beginning of November. I think the Naz wants to move back up to 2450, but where to after that? That's the real burning question in my mind. The area around 2450 is the new line in the sand. And yesterday's selloff left a bigger red candle than the selloff at the beginning of November, so it does give me some concern as to how many more of these one-day hits can the market take.

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Monday, November 27, 2006

Today's trades

AAPL gapped up and started running out of the gates pretty strong this morning. I thought to myself, What a way to start your morning! Little did naive ol' moi know what carnage lay ahead.

Blech... Despite being chopped out of AAPL, I wasn't ready to give up yet (even though at this point, I knew I had to get out of all of my calls that I held from last week). Aren't I a sucker for punishment? I noticed that GROW was moving up strong despite the market selloff.

Now, I know that GROW is a wild swinging stock, so I was hesitant to enter a position only to be chopped out later. So what I tried was this:
During that narrow range candle, when the price action was slow enough, I started my bid at the BestBid+1 (bestBid was at 49.13 at the time). The BestAsk at that time was about +0.40 away, which sounds like a wide spread, but typical of GROW. Of course, there's always some computerized trading automaton that matches the bestBid. (Not sure why these programmed trading computers do that, but I see that happen quite often.) So I kept bumping up my Bid by 1 until no one wanted to match me. Then I just let it sit there. Within a few minutes, I was filled !!
For stocks with wide ranging spreads, I think I will continue to try this technique.

Also, note that these particular charts were generated by using traderZBS's handy dandy chart generating tool. If you have an IB account, give it a test drive!

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Results from the Turkey Feast

Well, today was basically your "hit the panic sell button" type of day. I dumped all of my call positions within the opening half hour of market open.

My approach for playing the Thanksgiving holiday weekend was to cast a wide net and play many of the hot momo stocks. I won with the NDAQ, RIMM and NYX calls, but lost with the AKAM, GOOG, and FMCN calls. There was a selloff this past Friday, but it was such light volume that I wasn't sure whether that was a legitimate warning signal. However, today was a clear warning signal. Here's two of the trades that were mildly interesting:
With AKAM, I was anticipating a breakout that never occurred. And yes, I know that breaks rule #4 of my Trading Rules. **** sigh *****
The other one was FMCN, where I screwed up my purchase of the calls:

There isn't too much else interesting to comment on in the charts since they all sold off in a similar fashion this morning, so I won't bother posting the remaining charts of the call trades that I made. If you are interested in the gory details, I have updated my Trading performance link which contains these particular options trades that I made.

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Gold and the USD$

Gold is up +10 in the overseas markets. I will be looking to trade some gold stocks this week. Russ's Yamana Gold looks good on the next pullback, as does my previous pick, Northern Dynasty. Fronteer is another good candidate.

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Sunday, November 26, 2006

The "Base and Explode" pattern

This pattern is easily recognizable, and the name for this pattern was first coined by the guys at High ChartPatterns. Essentially, the "base and explode" is when a tsunami of buyers simply overwhelm the sellers. The tsunami is a the appropriate analogy here - the sellers are completely, and utterly overwhelmed EVERYWHERE, and it is sustained for at least a good few candles. That is also what makes this pattern a high-probability chart pattern. The stock price goes vertical, and only starts to level off when the tsunami of buying panic recedes.

Here are a couple of examples which illustrate this pattern:
My daytrade of ICE call options was also an example of the Base and explode pattern.

Characteristics of the "Base and Explode" pattern:

1. There is a series of low volume, narrow range candles just before the extreme volume for the duration of the vertical price spike.
2. The stock almost always establishes a new support level when all is said and done.
3. Often occurs in the direction of the pre-existing prevailing trend.
4. The best way to describe the price-action during this base and explode is: vertical. Not only does the price go vertical, but the Ask goes vertical, and even the Bid goes vertical, often in unison.
5. Think of a person quickly climbing up a 30ft ladder, and that is similar to what "base and explode" will look like in a real-time chart.

The main difference between the "base and explode" and the breakout pattern is that a pre-defined resistance level is not required for a base and explode. Also, breakouts follow a normal up and down movement, and follow the ebb and flow of the sector/market. Base and explode does not. It is singular and precise in its action, and that is vertical.

Because it is hard to know when the tsunami of buyers will recede, the best way to play a "Base and Explode" pattern and the lowest risk entry point, is to be at the right place at the right time - and that is at the start of the explosion. This basically implies that you have to be stalking a stock ahead of time, and have your trap set (by way of a price event alert). You have to be ready to act quick.

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Internet Intermission, part II

My uncle continues to be a good source of interesting stuff found in the 'Net. These pictures of extreme hiking don't seem to be photochopped.

I am getting vertigo just looking at them. Not sure whether these hikers are considered brave, very, very adventurous, or stupid (maybe all of the above?) .

Thanks also to my uncle for providing a powerpoint slide of some vivid, yet relaxing imagery set to soothing music. Anyone knows what "Machtig mooi" means ?

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Saturday, November 25, 2006

Closed grow

As previously mentioned, I place a trade in grow. Here's how it turned out:Without knowing what happens on Wednesday, the only technical reason that I see for holding onto that trade was because it did not violate the 10d EMA. However, GROW did not break above any intraday resistance, so that was one not so encouraging sign. I'm glad I sold where I did.
But now that GROW has started pulling back, there is a possible play on the pullback pattern here, so I will be watching it in the coming week for a possible low-risk entry point.

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Friday, November 24, 2006

When Forrest Gump met Dummy

Based on some recent feedback from SimplyOptions (who subtly pointed out to me that I had mistaken her as a "him" - colour me embarrased!), I believe now is a good time to share what I have learned about options trading.
There is still so much I don't know about options. What's a Gamma? When is it appropriate to execute a butterfly? That is why I try to trade like Forrest Gump - my lack of knowledge in options trading is hopefully compensated by the simplicity of my approach.

Approach #1 - Select an option that is liquid
For options, liquidity is defined by high volume and Open Interest.
If an option has low open interest, not only is the bid ask spread very wide, but it may be difficult to exit your position if the underlying stock moves against you.
For example, look at CME Jan07 550 calls (barely ITM as of Nov 24/06):

550.00CNMAJ.X27.80Up 0.3027.5028.5035701
The last number represents open Interest, 2nd last number was the trade volume, and the next two represents the bid/ask. Note the bid/ask spread is $1 !!

Now look at GOOG Jan07 510 calls (barely OTM as of Nov 24/06):
510.00GOPAU.X21.00Down 2.2020.8021.006814,751

Both open Interest and trade volume are an order of magnitude bigger than CME. Consequently, the bid/ask spread is also more narrow, which means I can get out of these options easily.
Though there are exceptions, but in general, the highly liquid options are found in the highly popular popular stocks. I stick with the popular suspects like GOOG, AKAM, RIMM, BIDU, AAPL, etc.

Approach #2: Buy Well Behaved, High Probability Setups
I have reviewed my options trades (plus a few more that I did not manage to post here), and I find that I have the greatest success rate when I buy options on stocks that follow the high probability chart patterns that I have identified. I noticed that my options trades failed (ie. I lost money on them) when I bought when the underlying stock was at resistance, or when it was going sideways, OR thrashing around alot (ie. misbehaving) with no clear direction. I have used the pullback pattern with a great degree of success. The breakout pattern I have had some success with, but sometimes breakouts fail, esp. in the current choppy market environment. The dummy spot pattern, I haven't yet tried (because I don't come across dummy candles too often in the group of stocks that I watch for placing option trades), but I am confident that it will also yield a good degree of success. I do remember one time buying some call options based on the hammer reversal pattern of the underlying, and had success with that option trade.
Options add "juice" to these high probability chart patterns.

Approach #3 - Hold for a short time
My time horizon for holding an option is typically 0 to 3 days. I have never held any option for longer than a week and see no reason to do so (with the exception of MNCS, stocks do not keep going up for over a week without pulling back). Because options are highly leveraged instruments, even an orderly pullback in the underlying stock can cause excessive weeping and gnashing of teeth for the option holder. The other problem with holding options is that of time decay, or what they call Theta. Say you buy an option for $5 when the underlying stock is $100. The stock pullsback to $97 and 1 week passes by before it climbs back up to $100. Well guess what, just because the underlying is back at $100, that does not mean that the option will climb back up to $5, esp. if the option that you are holding is close to its expiration date. Holding the $5 option for those few days cost you.
The Phantom of the Pits's Rule #1 is very appropriate here: I only hold options for the time that it goes up and I am gone as soon as it stops going up - there's no reason (in options trading) to wait until you are proven wrong.

Approach #4: Keep it Simple, Dummy
I don't know how to execute an Iron Condor or a Butterfly. And while the concept of a straddle is an interesting play on pending earnings announcement, I just prefer to keep things simple. Wait for the high probability setups. Buy calls when the stock goes up. Buy puts when the stock goes down.

There are obviously still a few unanswered issues. For instance, is it possible to risk the same amount each time in an options trade? I am still trying to experiment with appropriate position sizing. I also don't have a rule for how to select which option for the trade (1month out, 2 months out, or 3 months out? ITM or OTM, and how far ITM/OTM?). However, I have a tendency to select options that are 2 months out, OTM but within one or two ATR's of the underlying stock price. Example: If I were to make a play on GOOG's potential continuation move, I would look for Jan07 520 calls.

Well, that pretty much captures how I trade options. Hope this helps those who are considering trading options, or want to try new approaches to option trading.

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Tournigan Gold 'n Strateco Resources

Bought TVC @2.98 near end of day.

Bought RSC @1.80 near the open

Will post charts once these trades are closed.

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Thursday, November 23, 2006

daytrading RIMM (on the TSX)

RIMM trades as the ticker RIM on the TSX.

I wasn't surprised by the bullish tone on RIM, but I was surprised by the strength of the buyers, esp. given the light volume in the morning session.
As it turns out, there was no technical reason to sell @159.27, other than fear of losing my profits. In retrospect, the 7th candle (10am), which started just above that level, was actually a good time to buy. I was whining to myself about how I didn't take on a big enough position size, and of course, it never dawned on me that the ticker was offering me just that opportunity to increase my position size.
I guess I've been so conditioned to protect my profits, and sell into strength that I forgot to look for opps. to increase my position.
But, even though there is still much for me to learn about when to take profits, I am still happy with my profits that I did make with these two daytrades.

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Wednesday, November 22, 2006

Loading up for the Turkey Feast

In observance of the Thanksgiving Day holiday, I made the following purchases......

Mon. Nov 20:
1114a: Bought UMUAK @2.03 (acb)

Tues. Nov 21:
0958a: Bought GOPAV @16.01
1354p: Bought NYXAB @5.6

Today (Nov 22):
0941a: Bought NQDAV @2.0
0944a: Bought QOHAN @4.1 (messed up the limit bid order !)

Charts will be posted once each trade has been closed.

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Tuesday, November 21, 2006

Long Live Google

Unless you've been living under a rock, you'll know that the mighty Google hit the $500 mark today. Not only have the plethora of Internet media, blog and finance websites felt compelled to make this their top story, but this event has also hit the mainstream media. The Google brand name is now so popular that even my mother has heard of Google, and she's only been online twice this year.

In surpassing $500, the Big G has defied what almost every analyst and armchair analyst said would be impossible to achieve. To say that Google is overvalued is akin to uttering nonsensical words that are devoid of meaning, substance, and relevance. That is because it is already common, and public knowledge that Google is overvalued, and has been almost since its IPO. Google stock may come back down to earth one day; however it becomes meaningless to try and predict when that day will come. Certainly today is not that day.

I also read about how there are no barriers to entry to compete with Google. The fatal flaw with using this as the basis of an overvaluation argument is that building a better search engine than Google does not translate to better monetary success than Google. Sure, anyone can get into the same game as Google, I'll give you that much. A big whoopdeedoo. But to focus on the low barriers to entry is completely missing the point. Once you've entered the game, you need to figure out a way to win at the game. YHOO and MSFT haven't figured out yet how to win at this game. In fact, no one else has figured out how to win at this game. Only Google is winning not just the battle, but also the war.

Anyways, to commemorate this historic event of surpassing the $500 mark, I have uncovered some mildly interesting facts about Google:

- Google has in the past 8 years, grown its market cap to a level that took HPQ 67 years to achieve.

- There are only 7 other publicly traded companies (not BB, Pink's, or preferred's) that have a share price higher than $500:
BRK.A, BRK.B, SEB, WPO, WTM, NVR, CME. Out of this elite group, only the Berkshire stocks have a dollar volume that is greater than the Big G.

- By surpassing the $500 mark, the Big G is now worth more than the likes of IBM, Chevron, and Intel. Goog only needs to hit $540 to surpass Cisco in mktCap. Anyone care to wager that this will not happen within the next few months ?

- I recently discovered that Google Desktop Search v4 requires at least 1.5 Gb hard disk space to index about 160K files/webpages/emails/chats. As of Dec 2004, Google has indexed over 9Billion items. So if this ratio holds true for Google's own search engine, then that means a storage space of at least 90,000 Gb was required back in Dec/04. If this number seems a bit low, keep in mind that this does not account for the Google apps that have been introduced since then, such as Google Base, Google Earth, Google Page Creator, Google SpreadSheets, and Writely, and also storage space on redundant servers distributed across many data centres.

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Deconstructing My BIDU call option trade

As mentioned yesterday, I closed my BIDU options trade after holding it through the weekend. SimplyOptions Trader (who's got a nice options blog of his own btw, check it out!) asked about my BIDU trade, so I thought I would explain my thought process before, and during the trade.

1) Why would you be paying attention to this stock on Friday Nov 17, 2006?
Because it had gapped up the previous day.

2) Is the trend up or down? Would you be looking to get long or short this stock?
Trend is up. Would be looking to get long on BIDU calls.

3) Where would you get long/short this stock on Friday Nov 17, 2006?
The lowest risk entry would be on a break above previous day's high with accompanying volume. However, I got long when the price/action indicated to me that BIDU was not going to fill thursday's gap (at least not on Friday). So there are now two reasons to go long:
- it was challenging previous day's HoD
- price action indicated a good probability of previous day's gap up not being filled.

4) Where would you put the initial protective stop?
106.95. What that meant was that I would sell the calls and close my position if BIDU dropped below 106.95

5) Why did you hold over the weekend?
Because there was a good bullish tone to the price action.
Because it closed near its HoD.
Because the previous day's gap up did not fill.
Because the setup was there to provide a good chance of follow thru buying in the next trading session (Monday).

6) Where would you exit the position?
BIDU is making new ATH's, so there are no pre-defined exit points above current stock levels.
The reason I sold my calls @111 was because that is where the stock started to reverse, indicating that there would be a lack of buyers to push it beyond 111.

As it turns out, I closed my BIDU trade too early. And guess what? BIDU is one of those stocks that I thirst for. Why? Because it is doing now what AKAM and STEC did in Sept, and what AAPL did in Nov/05.

With my current methodology, it really is hard to hold onto a stock like BIDU for the whole month. I haven't been able to do that without taking on some extra risk. When a stock like BIDU goes on a run for 1 or more months, it seems the only way to stay on the ride for the whole time is to keep your stops loose. But the longer you are on the ride, the more you expect the ride to end !! Anyways, I'm still trying to figure out how to make the most of these multi-month momo runs when they happen. If anyone has it figured out, let me know.

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Monday, November 20, 2006


Ok, I'll have to admit that where I bought GROW was not a low risk entry (initial stop was 45.20-ish). Then why did I buy it where I did? Simple, I was watching the price-action. It kept bumping its head against the 45 barrier, but each time it pulled back, there was buying support just below 45. So when it finally decided to break above 45 for good, I simply "knew" (by invoking trader's intuition here) that 46 and 47 would be simple hop, skip and a jump for this stock. The other thing was that I've gone through a couple previous occasions where I was just watching the stock take off without me because I was staring it in disbelief that it was capable of doing what it was doing right before my eyes. GROW is another one of those "I don't believe it" stocks. Technicals say overbought, and I thought Friday was the start of an orderly pullback. But today, it told me, "nope, I want to go higher, now go deal with it."
There was no anticipation, no prognostication here - in fact, I was actually looking for it to drop back to 43.

Because GROW became even more overbought today, I will need to keep it on a tight leash - raised stop to 47.

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Closed my BIDU call option trade

As mentioned on Friday, I bought some Bidu calls. Managed to hold them for only 1 day. Here is how the trade turned out:
This is more of a flip on the hourly timeframe, but a win is a win is a win.

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Closed my FRG swing

I mentioned that I bought FRG (on the TSX) last wednesday. Here is how the trade turned out:Boy does that feel good...
The great news is that FRG is not done yet. Not by a long shot. Will be look for another pullback to jump back in. Gold and Uranium (metal price) are just getting started. If it stays near 11 (on the TSX), that is a bullish sign.

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GOOG call option trade

This is a 2d, 15min. chart of Goog, with my Dec06 500 call option trade highlighted:

I followed my plan (wait for a decent setup, keep my losses small) but the trade just didn't work out. I don't think GOOG is ready for 500 yet, maybe next week.
Probably better just to be even more patient and wait for the break above 500, at least that will have some initial follow-on buying if for no other reason than to take out all those buy stops waiting just above 500.

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Sunday, November 19, 2006

Ideas for Week of Nov 20/06

RealMoney's Barometer
The Naz has been overbought for most of the week of the Nov 13th. And there are many pundits and analysts in the market that are looking for a pullback for this coming trading week. That may or may not happen, but it will be something I'll keep at the back of my head (market overall health) as I ponder the following candidates:

SU -
Haven't tried shorting for a while and this oil company may present the opportunity to do so this coming week. WTIC is facing selling pressure, and $XOI and XLE are both showing signs of rolling over.

DTAS - looks set to break out from 11.1 resistance

EFUT & NMX - there may be opps to scalp and/or daytrade these two. If the opp presents itself I may have to do this in a different trading acct. EFUT looks especially interesting if it can break back above 35.5.

FRG - possible continuation move if it can close above 9 (on the AMEX)

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Saturday, November 18, 2006


Well, I think all eyes were on the debut of Nymex today. And from the look of the intraday chart, it looks like the first 10-15 min. of its trading debut looked like a good scalp. But I just plain forgot to put it into my watchlist from the previous night, so i missed out on the action. Turns out it would have been a even better trade than the call option daytrade that I made on ICE.
I initially thought that NMX's IPO helped to lift the whole sector. However, the charts suggest that ICE's big short covering rally today is due to something other than NMX's IPO, though I'm not sure what that something might be.
I also wonder if today's NMX IPO might mark the peak of the popularity with these publicly traded exchanges.

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Friday, November 17, 2006

Call option trades for today

What a difference a day makes! I ended this week with a couple of good trades.
First, I daytraded some ICE calls:

Like I previously said, I generally try to avoid daytrading American stocks, but in this case, the daytrade in ICE was very low risk and high probability. Basically an explosion-type of surge in buying volume. That was just too good to pass up.
Next, I bought some BIDU calls (but probably not enough in retrospect, oh well):
BIDU is a good example of what leaders do: they lead. On a day when the rest of the Naz was sold off and down, BIDU did NOT fill the gap from yesterday. Of course, that doesn't mean that the gap won't be filled. But one characteristic of these leaders is that they attract buyers. Call it the hot money rotating into the hot sector, or some momo with some mojo, but BIDU has what it takes to be a leader. BIDU will be the leader at least until it shows us that it is no longer a leader. Innocent until proven guilty.

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Wednesday, November 15, 2006

Restore, Refresh, and Renew

Soon after I wrote my previous post beating myself up for the botched AAPL trade, I found another one of Dan Fitzpatrick's latest freebie articles. This particular article talks about the attitude towards trading. I feel as if it is, in an uncanny way, speaking directly to the trading problems that I was experiencing today.

You are what you eat. Steve Pavlina's theory of Intention-Manifestation. Good things come to those who help others. DanF says you become what you think about. What is the common thread?

Attitude is the common thread. Attitude is everything. You can't control what life throws at you, but you can control your response to it. I've almost forgotten this age old piece of sage advice, and DanF is basically suggesting the same thing when he says that after every trade, you can EITHER dwell on the negatives and internalize them (which I think is what I started to do earlier today), OR you you can focus on the things that you did right and internalize that.

I think what he's also trying to say is that cycle of dwelling on mistakes needs to be broken, because not only is it unhealthy, but it eventually becomes a self-fulfilling prophecy. This is somewhat similar to a negative Intention-Manifestation. At the risk of sound philosophical here, my thought is that if the whole notion of a self-fulfilling prophecy is even plausible to you, then that alone lends credibility to Pavlina's theory of Intention-Manifestation. The key to breaking the self-fulfilling prophecy of failure is the attitude.

I think I know what I need to do - practice following all of my trading rules, not just when it's convenient to do so, or when I feel like it. That is probably the first habit I need to practice on, following all my rules exactly when I do NOT want to do so. Instead of visualizing the perfect, and profitable trade, I will visualize myself following all my rules. Yeah, it probably sounds a bit silly, but I feel that it makes sense for me.

On a slightly related side note, does anyone ever wonder why it is so easy to wait for an unprofitable trade to break even, and yet it is so hard to wait for a well-behaved, low risk setup ? I don't know the answer myself, but I'm willing to bet that the answer has something to do with self-discipline. In order to tackle the challenge of cultivating self-discipline, I think I will need to do something that is seemingly unrelated, like training myself to bike to work more often, or training to run 10km.

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Same Old Same Old

Let's see, which of my trading rules did I break today? Ah yes, it was Rule #4, which says to put in the time and patience to select only stocks with well-behaved, good quality, high probability, low risk setups. AAPL on last Friday's pullback was considered a low risk setup. But today? Questionable at best.
What was going thru my head was whether I should cut my losses or make this a swing. During Options Expiration week, how did a thought like that get into my head? I'm at a loss to explain this sort of screwup. And since I'm finding myself repeating this mistake again, I think it just got that more important for me to work on patience. I've also noticed lately that I haven't been as patient with my daughter as well...... any correlation here? Does it need to get any more obvious that I need to work on patience?

This screwup stayed inside my head most of the day, such that I didn't really feel the victory from buying back into Fronteer @ 8.57 (FRG closed today @9.1 on the TSX). It's true what they say - the pain from a losing trade far exceeds the feeling of victory from a winning trade.

It may sound like I'm overly hard on myself for making this mistake, but I guess that is the approach I'm leaning towards for coaching myself. Take my lumps when I lose, and celebrate when I win.

Chin up, move on..........

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Tuesday, November 14, 2006

I'm on Google Finance

Not sure if this is a good thing or a bad thing, but one of my posts on BreakWater Resources made it onto Google Finance. Will need to think a little bit about how to manage or take advantage of this added exposure.
Technorati Profile

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BreakWater Resources, Round 2

The first time I tried to trade BreakWater Resources, I was successful. However, this time, I tried playing the dead cat bounce in BreakWater Resources (BWR). That idea in itself was not a mistake. However, this was a screw up in two aspects:
1. I knew the short term trend was down, but even so, when it offered me the chance to get out early this morning, I did not take it.

2. I had a wider stop, but still did not reduce my position size. So, I deserve the stop loss that I wound up taking.

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Monday, November 13, 2006

A Peek Behind the Curtain to the Future

I read this CNN article on "The Next Disruptors" (click on title of this post for the link), and a couple of the companies mentioned really caught my attention with their visions of the future. Not to mention the possibility of investing in/trading them if they are not acquired by the time they go public is appealing enough for me to bookmark these companies for future reference.

CogHead - This company provides you with the tools to build your own Web2.0 app - all this without requiring you to know any of the Web2.0 languages, like XML, CSS, DHTML, AJAX, PHP, Flash, etc. Ok, maybe some knowledge of scripting is required, but if you can pretty up your blog, you're sophisticated enough to use CogHead! - I mentioned this company before, and it's worth mentioning again, because the concept of peer-to-peer lending is just the kind of disruptive innovation that can threaten the structure of the traditional loans from conventional banks. P2P lending decreases risk by diversification, enables personal lending on a anytime/anywhere massive scale, and reaches customers that would otherwise be unserved. Another company that is experiencing success with the P2P lending model is Zopa.
It's too bad there is no such service available in Canada, and also doubly bad that these companies are not yet public.

NextMedium - this startup is doing something almost revolutionary, and yet at the same time, almost inevitable as well. Through an online exchange, this company automates and standardizes the process of commercial product placement in TV shows, movies, and videogames. Sort of like an eBay type of marketplace bringing advertisers and media content producers together. The media industry has been dying for this kind of an application with immensely lucrative potential, and for me, the question is whether eBay or Google will acquire them before they go public.

EEStor - This startup is so secretive that it doesn't even have a website. It has also been dubbed the next Google of the clean energy industry. It is developing a hypercapacitor that it claims has 10x the energy capacity of a lead-acid battery of a comparable weight, requires only about 5 mintues to charge up, is not explosive, corrosive, or hazardous, and costs much less to produce than a Li-Ion battery. The initial application for this hypercapacitor is electric vehicles, but can also be eventually extended to basically replace the battery as we know it. Sounds too good to be true, but note that KPCB has been drinking from the same cup of Kool-Aid - and this is the same VC firm that made early investments into Amazon, Google, AOL, Netscape, Tivoli, and most recently, BroadWing.

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Closed out my ROK swing trade

Roca Mines closed today @1.58, so it seems like I may have left a few points on the table. Will be monitoring the $1.47-1.48 area for any signs of buying support.

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Internet Intermission

Nice to see someone is trolling the King of patent trolls, NTP.

Do you live in an Antipodal city ?

Ok, now I've realized that I have being viewing salaries completely the wrong way.

Some not so off-topic links:
How to trade Round 2 of the gold bull market.

This site contains almost everything you have ever wanted to know about the uranium industry. If you didn't find what you were looking for there, then try this uranium 101 site.

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Sunday, November 12, 2006

Northern Dynasty Minerals - Gold Bull, Round2

Many junior miners have garnered a renewed buyer interest in the past week. The reason I say this is because I see many of the junior mining companies in the stockChart's strong volume Gainer scanner (as of Nov 10).
One junior mining company that has shown up in my scanner is Northern Dynasty Minerals (NDM.V, NAK on the Amex).

I see congestion at around $7 - $7.2, which also happens to be where the 200d is curently sitting. May take most of this coming week to work through that resistance; however, if gold/copper/molybdenum starts taking off again, there is a good chance that this this smallCap will be amongst the front runners. What is so special about this small cap over all the other hundreds upon hundreds of small caps? In terms of technicals, not much. However, there is a special story behind the company behind this stock, special enough to make this an interesting play on the gold/copper/molybdenum bull run. Check out the website (click on title of this post for the link) for further details of their story. And since it is dual listed on the TSX Venture and the Amex, this is one mining story that y'all Americans can participate in as well.

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Saturday, November 11, 2006

Update on Fronteer - Possible Pullback Play

Fronteer is a play on both gold and uranium. This can be a double edged sword. Both are going up, so that is a bonus, but if one were to falter, that could spell extra churn and volatility (not that it isn't a wild swinger at the moment) for this stock. It's not unlike the game of musical chairs, so honouring your stops is absolutely mandatory if you're going to consider playing it.
FRG is also setting up as a possible Pullback pattern for next week. The possible gap fill is one area of congestion to watch.

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Friday, November 10, 2006

MicroCap swing trades

I mentioned previously at MCM's blog that I would make a post on a trade that I made based on one of his recommendations. . My apologies for the delay, but here it is. First one is BreakWater Resources (TSXV:BWR):I no longer have a position in Breakwater, but I am currently monitoring BWR to see how it behaves between 1.85 and 1.90.
Next trade is Roca Mines (TSXV: ROK), and the idea for this also came from MCM's blog:

I heard about ROK before, but didn't really understand their story until now. As with all microcaps, volatility is the norm, and these guys can swing more wildly than anything else I know. Although I agree that this one has some room to run, I will be watching the price and volume the key levels: 1.44, and 1.26. Even though I mentioned that my initial stop is at 1.44, if it does ever drop down to that level, it will still be a case by case basis as to whether I dump. I will be monitoring the price and volume behaviour very closely for sure should that happen.

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Thursday, November 09, 2006

The Show Must Go On

Ok, I feel better now. Took a nice long and refreshing walk yesterday, haven't done that in a while. Started noticing all the little things, like what the cold air smelled like, what stores were actually near where I live, how much traffic there is during rush hour, how fast time can fly by when you're walking just to enjoy the view as opposed to walking to get somewhere.
So while I was walking, I started thinking about what I want to do, and what were my options. My assessment of the situation was that, as much as I enjoy trading, I just wasn't ready yet to make the transition (on my own terms) towards trading for a living. In a weird way, starting this trading journal helped to convince myself that I'm not at that stage yet. In looking back at this journal, I find that I'm still making enough mistakes that were I to do this full time, I would not be setting myself up for success. The key to trading success boils down to two (seemingly) simple principles: risk management and self discipline. For me, I feel that I have been making progress on the risk management aspect (keeping losses small, taking smaller position sizes for wider stops, honouring my stop losses). However, in all honesty, I have not been making enough progress in the self-discipline area. The biggest obstacle blocking my path to trading success is that I still lack the patience to wait for the well-behaved, good quality, high probability, low risk setups to come to me, and instead am prone to chasing still. I also experience these bouts of overtrading every so often, and they have hindered more than helped my progress. It really is that important to wait for the chart to tell you what it IS doing. Tyro trader and TraderZBS kind of said a similar thing, albeit from a different point of view. Successful trading, at least in my case, is really an exercise in self-discipline. The lack of patience in my situation is serious enough to prevent me from making consistent profits from trading. And without consistency, it becomes that much harder to succeed !

I guess what I'm trying to say is that I'm going to stick with looking for a dayjob (if you know of any job leads in Vancouver, please contact me for my resume - check my Blogger profile for my email). My criteria for making the transition to trading for a living will be when I can demonstrate to myself that I can consistently trade with a minimum of mistakes. My trading performance will be the bottom line judge of my consistency.

It's back to status quo for this trading journal. I don't think I have any drastic changes to make. Keep posting up charts of my trades so that I can learn what I did right AND wrong. Keep posting my thoughts on strategies, and approaches to improve my trading. And of course, continue to post the trading performance so that I can observe my own progress towards consistency. Which reminds me, I really need to give props to those full-time traders who are able to do this with a greater degree of success than myself. The ones that I read (albeit some more than others) - Brian, Richard, JC, TraderX, TraderMike, Russ, Tyro, and ugly, these guys have my admiration and respect for making something so hard (at least to me) look so easy, and I aspire to join their ranks in the future.

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Wednesday, November 08, 2006

At a CrossRoads: I've Been Laid Off

I was sitting in my cube, checking some blogs, and fixing some embedded systems code (my day job is an embedded systems Engineer). Then my boss comes to my desk and asks me if I have a minute to chat with him. Ok, so we walk past his office (1st bad sign - private chat with a boss, but NOT in his own office) and into a meeting room with the HR lady (2nd bad sign, my boss wants to chat with me with the HR lady present). Instantly I started getting nervous and fearful.

And that's when my boss said the L-Word. I have just been laid off.

I've been laid off once before, but even having the prior experience of knowing what it was like didn't make the pain or shock any easier. Sure, there's a token severance pay, but my full-time position with my company will, with absolute certainty, no longer exist as of Dec 1/06.

My job was comfortable, way too comfortable, and I knew it - employee stock options, employee stock purchase plan, full medical/dental coverage for my wife, my daughter and I, group retirement savings (RRSP) plan, re-imbursement of monthly Internet fee, flex hours, personal laptop (officially for business use). If I choose to find another similar engineering position, it will have similar benefits. How do you choose to leave a job with all these kinds of benefits?

The only scenario where I would knowingly choose to give up a comfortable job like that was if I were trading it for a better opportunity to do something for which I have a greater passion. Trading for a Living comes to mind.

I have tried use this trading journal to prepare myself for the day when I would feel comfortable choosing to Trade for a Living, but that day has come too soon (and not by choice), and now I am fearful, uncertain, and full of doubt.

Full of doubt as to whether I will be able to earn enough profit from Trading for a living to be comparable with an Embedded Systems Engineer's average salary.

Uncertain as to whether I should pursue trading for a living as an alternative to looking for another engineering dayjob.

And last but not least, I am fearful - the safety net of a regular, stable, and reliable paycheck would be removed, and I fear I would fail as a full-time trader.

Should I risk all the fear, uncertainty and doubt to explore my greater passion to trade full-time? I don't know, I can't think straight any more.

I am going for a walk to clear my head. Any advice is appreciated.

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Tuesday, November 07, 2006

On a lighter note......

My uncle recently bought a computer (his first one), and started getting "plugged in" into the online world. I phoned him recently to find out how the Hang Seng Index is doing. He threw out a couple of ideas.... CHL, LFC, and SNP. And now that he's become more familiar with surfing, he forwarded this interesting link to me. Listening to the soothing music while I scroll through the majestic scenery makes me want to go and visit China.

On a totally different note, I upgraded to FF2.0 just tonight just because I got a Windows Update alert asking me to download and install MSFT's new IE7.0. FF2.0 works great! The biggest difference that I notice is that it is much more stable, and it has not crashed on me yet. With the older FF1.5, it would often crash on me not long after starting a blog posting, which got frustrating at times. Sliding tab windows, tweaked UI, faster page loads are all nice bonuses as well. I think everyone and their uncle should be using FireFox.

I've also started experimenting with GOOG's customized search engine. Seems like every other blog that I come across has this custom search engine, so I will join the bandwagon as well, and experiment with how to optimize it for this trading journal.

UPDATE: Experimenting with my Technorati Profile

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BIDU call options trade

A sign of a good trade - if I had to do this one all over again, I'd probably still buy the BIDU Dec06 40 calls today (although I would try to catch it closer to the open).
I held thru the intraday pullback on this one because BIDU behaved better than NDAQ. I could just sense it from watching the ticker that BIDU was more orderly than NDAQ.

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Where's the Undo Button?

Made two major screwups today. First one was a trade in NDAQ Dec06 40 calls:

The mistakes on this one were numerous and damaging.
1. I thought I could continue the success that I had with my highly profitable RIMM options trade, and that clearly is not a good reason to enter this trade.
2. There was actually no good technical reason to enter that trade on any timeframe, but I did not study the chart long enough beforehand to realize that.
3. Once I was in the trade, there was a warning to get out when the continuation candles did not show up, but I ignored that first warning.
4. Thoughts of hope started creeping into my mindset again.
5. Temporarily forgot that options can magnify my losses. Since I only mentioned this a couple days ago, my only explanation is that I got greedy. Again.

My other screw up involved another daytrade in TSX:MGA that I would also like to have back:
The mistake made here was pretty dumb:
Sold right at support because I just watching the ticker, and simply didn't pull up a chart before deciding to exit the trade. This mistake is so dumb that I wish I didn't have to post it to this trading journal.

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Closed My RIMM options trade

Left a bit of money on the table with my RIMM calls. Based on how RIMM pulled back to the 10 candle EMA line and bounced right off it, I would actually classify this trade as a mistake if I didn't make so much profit from this trade.
The daily chart still looks good, and definitely got the volume today, so I will check in tomorrow to see if there is another opportunity to get back in.

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Update for Active Swing Traders

For those who ever thought that the HighChartPatterns newsletter is meant only for daytraders (I had previously counted myself as a part of this group), you might be interested in knowing that the newsletter format has been updated to now include a section aimed specifically at swing traders.
And no, I do not work for them, nor am I affliated with them in any way other than being one of their paid customers.

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Monday, November 06, 2006

Daytrading Mega Uranium

I made one Canadian daytrade today:
Mega Uranium was one of the stocks that I had mentioned in my post yesterday. How bullish is the uranium sector? Hmm...... Let me put it this way:

I printed up the charts of those 18 uranium miners, closed my eyes while I spun it around a few times, and threw a dart randomly at the chart. It came up MGA, so I bought it this morning without even researching the fundamentals nor technicals, and flipped it for a +0.34/shr profit.

Okay, ok, so maybe not all of that was all true. I did keep one eye open when I threw the dart......

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RIMM call option trade

Made one American trade today, and it was in options:In retrospect on this RIMM trade, it probably would have been wiser and lower risk to wait for at least one more, maybe two more candles to confirm uptrend. Not sure if I'll be able to hold my calls (RUPLD == Dec06 120 calls) more than 1 day. Will need to think more about my criteria for holding. Although the daily chart on RIMM looks encouraging, Tuesday is election day, and I'm not sure what kind of volume and volatility that will bring to the markets.

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Sunday, November 05, 2006

Ideas for the Week of Nov 6, 2006

Many of the stock trading blogs that I have read have identified this current market as overextended, overbought and due for a pullback. Two market sentiment indicators that I regularly use, the NAA50, and the BPCOMPQ, seem to agree with that assessment. Adding fuel to this argument are the fact that both SDS and QID appeared to have broken their current downtrends.
Given the increased risk of the market rolling over, and the uncertainty surrounding the midterm elections this week, I wasn't surprised that I was not able to find too many decent ideas for this coming week.

Here is one that I did find with a decent setup:
Basically, if 13 can hold up as support, then a challenge of the high @14.4 will be in the cards.

In the meantime, while I wait for the direction of the market to assert itself once again, I will be looking at daytrading and swing trading some stocks that are in part of the biggest bull market rally that no one knows about. And yes, all of the uranium stocks that I identified are Canadian stocks which trade on the TSX (or TSX Venture exchange). Currently, the only American stocks that I know of which are involved in uranium are: Cameco (CCJ), Fronteer Development Group (FRG), and US Energy (USEG). There may be one or two others, but really, Canada is the premier market of choice for Uranium companies, and even mining companies in general.

UPDATE: In case there is any misunderstanding, Cameco and Fronteer are both Canadian companies that are dual listed (on both the TSX and the NYSE/AMEX). I think those are the only 2 Uranium mining companies that I know of that are dual listed.

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Saturday, November 04, 2006

weekends are for housekeeping

First off, I will say goodbye to NeoWorx. The bells and whistles were fun while the free ride lasted.
Next, I thought I would just mention for the record that I am now a paid subscriber to the HighChartPatterns newsletter. This newsletter focuses on, and caters to daytrading setups. Since for now, I try to avoid daytrading US stocks (if possible), it would be nice for them to mention some stocks which are swing candidates more often. However, I still find their service useful enough for me to become a subscriber. This is because often I find enough of their daytrading recommendations to also be good swing candidates as well. If I make a swing trade from one of their daytrading stock recommendations, I will remember to note it on the chart. I think I did it once or twice already.
I also haven't been maintaining my performance spreadsheet for most of the latter part of Oct (although I started again for Nov). I overtraded in the last half of Oct, so that meant a lot of time and effort to record the positions into my spreadsheet. Plus, I ran into a bit of a rough patch around the 3rd week of Oct (I think it was just before my Google options trade), which left me too discouraged to maintain the spreadsheet. What was weird was that 2 days after the Google options trade, things started to turn around for me. It's almost as if a switch came on inside of me to compel me to follow my rules:
1. keep losses small.
2. take smaller position sizes if you need to take wider stops
3. Honour my stop losses (stops in green is way better than to hope for green)
4. Only select charts with well-behaved, good quality, high probability, low risk setups.

I feel I have gotten ***better*** at following the above rules. This has made a significant difference in my approach to trading. Of course, I still need to work on the periodic bouts of overtrading, and getting better at following rule#4 should be able to address that.
I also need to find a simpler way to maintain the spreadsheet (TraderZBS's P/L table comes to mind) and will be exploring this in the coming week.
I've noticed that I've been more active in swing trading options recently. I've enjoyed the profits from the options trades that I made, although I'm very aware of the potential for huge losses as well. The key for me has been to keep posting up those picture windows, aka. charts so that I can study and review them later to identify what I did or did not do right.

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Friday, November 03, 2006

Fronteer Development Group (FRG)!

As mentioned in yesterday's post, I like FRG, and this morning, FRG broke out to new ATH's. FRG trades in both the American (AMEX) and the Canadian markets under the same ticker, so I bought FRG on the TSX Exchange @8.23 just before the breakout.
FRG is a play on both uranium and gold, and both are in the midst of a rally. I think we will likely see more upwards movement as more and more investors and traders alike start to "discover" this stock in the next few days.
Here's another reason to like FRG.

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Thursday, November 02, 2006

The Glittering Gold Rally

In a previous post that I wrote a few days ago, I talked about watching gold for a possible breakout. Well, guess what I saw today:

Put your rally hat on, it's time to go digging for some gold stocks. And while you are mining for the gold stocks, watch for the USD$ to fall below 85.
I like FRG in particular:

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Today's Bounce Plays

Taking a page out of Dan Fitzpatrick's insightful article on the bounce play, I made a couple of them myself today.
First bounce play was IAAC: With IAAC, I noted the sound of the toilet flush with that opening drop. Then I noticed that the stock immediately jumped back up above 26. When that happened, I tried a lowball bid of 25.82 (that was the bid before it ran above 26.2). I took a pee break and came back to find that my lowball bid had been filled !
This leads me to re-iterate Dan's Bounce Play rule#2: Buy as close as possible to the most recent low of the current uptrend.
Bounce Play Checklist:
IAAC's uptrend: intact
IAAC's most recent low in the uptrend: Oct23@25.5.
Profit taking: ended after the opening flush.

Next bounce play was GROW:
Bounce Play Checklist:
GROW's uptrend: Doubtful, hence my plan to bail at the first sign of trouble. However, note that GROW formed a nice hammer today.
GROW's most recent low in the uptrend: Oct23@28.5.
Profit taking: also ended after the opening flush, steady buying volume thereafter.

Finally, I daytraded some BIDU call options again:
With BIDU, I did get a bit worried when it came back down to test the 85 level after I had bought the calls. I was ready to hit the sell button, but lucky for me, BIDU never broke below 84 after I bought it (around 7:08AM PST). However, once it stalled @87.15, there was no longer any reason to continue holding it, but I made the mistake of holding it to the end of the day.

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Dave Landry vs. Phantom of the Pits

I've only started reading The Phantom of the Pits recently. In Chapter 5, he states his first rule of trading:
"Reduce or close out a position altogether if it has not been proven correct. "

Closing a position because the market has not proven you correct is NOT the same as closing a position because the market proved you wrong. In other words, let the market prove you correct, but do NOT give the market a chance to prove you wrong.
IF I've interpreted and understand this rule correctly, what the Phantom is saying is that once a position has been opened, you are like threading a maze in the sense that there are only one or two scenarios where the position should be continued to be held, but there are very many, many "dead-ends" - scenarios where a position should be closed out. The rationale here is that the approach to the market should be from a position of pessimism, and that this the most essential way to keep losses small.

Now, If anyone has been following any of Dave Landry's webcasts, you'll know that he repeatedly advocates NOT micromanaging a position. I tried to describe in my own words what Dave Landry means when by micromanaging. Essentially, Landry advocates letting the market decide whether to take out your stops as a part of avoiding micromanaging your trade. Anyone who has closed out a position before their stops were hit, only to see the stock run-up dramatically right after exiting the trade will understand that micromanaging a trade will greatly increase the probability of missing out on such profitable run-ups.

How interesting.

So now I am looking at two trading rules that both make sense, but are in direct conflict with each other. The main conflict that I see here is that one is advocating quickly closing a position before it has a chance to hit your stop, whereas the other is advocating letting the market decide when to take out your stop.
So how can this be reconciled? I'm not sure that it can, because these two rules, I believe, address different styles of trading. Landry's style is to try to catch onto the multi-month run-ups like AKAM back in this past summer, or AAPL for most of the latter half of 2005. So, his rule of letting the markets decide whether to take out your stops is geared towards catching those multi-month, trending, momentum winners (with the occasional pullback here and there).
I haven't read enough of the Phantom of the Pits (POP) to understand what trading style he is describing with his rule. However, his rule#1 seems to suggest a trading style where winners are discovered by a continual process of quickly and ruthlessly eliminating the losers. This also suggests a capital preservation attitude governing the trade, as opposed to the capital appreciation attitude behind Dave Landry's stop rule.
At first glance, it may seem like the POP's rule seems to be more important than Landry's stop rule - after all, capital preservation is more important than capital appreciation. However, it should also be understood that these two different rules address different market situations. This is consistent with the fact that there is no one trading strategy which is applicable to all market situations. There will be certain situations and conditions whereby it is better to NOT micromanage, and there will be certain situations whereby it is better to close your position before your stop is hit. MAYBE in a trending market (which is not what we have this week), letting the market decide when to take out your stops MIGHT make more sense, and in a sideways, choppy market (which is what we do have this week), the POP's rule might make more sense.

Regardless of whether one rule is more correct or better or not, the bottom line is that it is actually good that we have two contrasting rules to study and digest - that's what makes a market! That way, we can use our own critical thinking ability to discern for ourselves when, whether and how to incorporate these rules into our own trading styles.

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Sitting and Watching....

No American trades today - haven't done that in a few weeks now!
And a good thing too - market actually gapped up to open, trapped the last of the permabulls and then tanked for the rest of the day. If I had made a trade, I would have been one of those permabulls that got trapped.

I did make one trade in a canadian stock - it's a junior gold mining penny stock. Got some decent buy volume in the morning, but got stuck in the afternoon selloff and now I'm sitting on a $75 loss. We'll see if it can bounce back tomorrow.
I've been working on another article while I was watching the markets, but now I am too tired to continue writing.... Will finish off that article tomorrow.

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