Wednesday, November 28, 2007

Check Up: High Dividend Yield Stocks

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In this previous post, I looked at some possible plays of some high dividend yield stocks.

I'm curious to see how they have been performing since my last update.

GLAD: If there is buying volume coming in on a break above 19.75, then buy, with a stop=19.45. This is the best play out of the above group of sorry look stocks.
RESULT - stopped out.

FHN: If it bounces up from 22, then buy the first pullback that retraces less than 50% of that bounce, with a stop placed @21.75
RESULT - criteria not met, no trade

NCC: Look for buying volume to come in on a break above 22, stop=21.
RESULT - criteria not met, no trade

CT: The safer play is to buy the break above 34. But since the stop is going to be initially placed $28.6, it may be less risk to wait for price to drop below 30 before buying. Granted, buying on a drop below 30 may not necessarily be a high probability play.
RESULT - stopped out.

CSE: buy a break above 16.5, stop=15.5
RESULT - criteria not met, no trade

BPOP: buy @mkt if the intraday low is greater than 9.62, stop=9.45
RESULT - criteria not met, no trade

With GLAD, I actually decided to stay in the trade even though it dropped below my stop level. I rationalized it, arguing that it was resilient enough to stay above the 20d EMA. I realize now that I still haven't shaken my bad habit of moving my stop after entering the trade. The other thing was that my trading plan for GLAD was flawed, since I did not account for the scenario where it would tag the 20d EMA and bounce off of it. So that's another thing to work on before I am ready to go back to trading full-time.

Anyways, with that self-analysis out of the way, I must say, I like GLAD out of the whole group. Most of the remaining stocks in that group still look very ill and broken. Except maybe BPOP. BPOP is actually starting to look constructive to me. If it can stay above $9 for the rest of this week, then I will be looking to buy a break above $10 next week.

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Market Tells


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I am using the following 7 stocks and 2 ETF's to give me a gauge on the overall health and direction of the market.

I am using BAC as a proxy for the financial sector, and GS as a proxy for the Broker-Dealer sector.
The reason that this particular group of stocks gives me a good tell on the markets is because they all performed relatively well during the August correction.
The first thing that I find interesting about these 9 stocks is that they all gapped up and never closed the gap (except for GOOG). Since none of the stocks in this group are thinly traded, microcap stocks, I find it unusual to find so many of them gapping up during the same market session. If the gap up does not close in the next few sessions, then that would be telling me that a fundamental shift in sentiment has taken place. So, that is the first thing that I will be looking for, either by Friday or next week.

The next thing that stood out when I looked at this group was that almost half of them (IBM, BAC, ISRG, MA) have been grinding out a bottom for the past two weeks. In that time, there were plenty of opportunities for the bears to challenge support, but the bottom did not fall out in this group of stocks. I'm not trying to call a bottom here, since there is no confirmation, but things are certainly looking more constructive and encouraging than they were two weeks ago.

Now the last thing that I noticed is that all of the stocks in this group have almost climbed back up to the their respective price levels at the beginning of November. What this means is that most of them are carving out hammer candlesticks on the monthly chart. They conventional way that most traders play a hammer reversal is to enter on the break above the top of the hammer. Unfortunately, then your stop must be placed at the bottom of the hammer. For the majority of this group of tells, I think it might be just as good to play for the tag of the November highs, instead of waiting for the breakout.

For example:
MA - enter on the gap fill @184, stop=182, price target=200.
RIMM - enter on the gap fill @115.75, stop=113, price target=130
BAC - enter on the gap fill @43, stop=42.4, price target=46
SMH - enter on the gap fill @31.7, stop=31, price target=34

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Tuesday, November 27, 2007

This is Why They Call It Turnaround Tuesday


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Markets are bouncing up today (ie. on Turnaround Tuesday) because of this tidbit of news:

Breaking News from The Globe and Mail
Abu Dhabi fund pays $7.5-billion for 4.9% stake in Citigroup


Tuesday, November 27, 2007

NEW YORK — — Citigroup said late Monday that the Abu Dhabi Investment Authority will invest $7.5-billion (U.S.) in the largest American bank, offering needed capital to offset big losses from mortgages and other investments.

The cash from the sovereign investment fund of the Gulf Arab state, which has been a beneficiary of this year's surge in oil prices, will be convertible into no more than 4.9 per cent ofCitigroup Inc.'s equity. Citigroup characterized the investment as passive and said the fund will not be able to name any board members to the bank.

The Investment Authority would become one of Citi's largest shareholders.

The Abu Dhabi investment, which was expected to close within the next several days, will be considered Tier 1 capital for regulatory purposes, helping Citi reach its goal of returning to its target capital ratios in the first half of 2008, the bank said.


"We see in Citi a highly respected company with a premier brand and with tremendous opportunities for growth," said the Investment Authority's managing director, Sheikh Ahmed Bin Zayed Al Nahayan. "This investment reflects our confidence in Citi's potential to build shareholder value."

Charles Prince stepped down as Citigroup's chairman and chief executive on Nov. 4, the same day Citi announced that it will likely write down the value of its portfolio by $8-billion to $11-billion in the fourth quarter.

In the third quarter, the bank's exposure to assets tied to subprime mortgages led to a loss of about $6.5-billion.

The Investment Authority will receive equity units that pay an 11 per cent annual yield until they are converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011.

The overnight session in ES went up well over 3hours before this news hit all the feeds. Note also that the price that Abu Dhabi paid for 4.9% of CitiGroup values CitiGroup at just over $30.72, which is a couple pennies above its closing price on Monday.
So far, it looks like the bulls are resilient in defending the 1415 level . Can this be the catalyst to turn the market around ? We'll have to wait and see what happens on the
inevitable re-test of the 1410-1415 level which should occur in the next week or two. The re-test will tell us whether we have bottomed or not.
If my theory about how Fund Managers do tend to act like lemmings turns out to be correct, then there should be a few fund managers coming out of the woodwork (or sellers now converted to buyers) who will start some buy programs over the next few days on the rationale that "well, this other fund is buying now." Let's see what happens.

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Sunday, November 18, 2007

Trading Results for Overnight session, Nov. 18/07

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I was playing it cautious tonight.

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Friday, November 16, 2007

High Dividend Yield Stocks

Another list of stocks to add to my swing trading watchlist.

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Earlier today, Chairman Mao listed 2 dozen high yielding financial stocks. Here is a chart of the first 10 (because the free version of stockcharts can display only 10):

None of them look particularly attractive from a technical analysis point of view. However, if you put a gun to my head, here are the ones that I would consider:

GLAD: If there is buying volume coming in on a break above 19.75, then buy, with a stop=19.45. This is the best play out of the above group of sorry look stocks.
FHN: If it bounces up from 22, then buy the first pullback that retraces less than 50% of that bounce, with a stop placed @21.75
NCC: Look for buying volume to come in on a break above 22, stop=21.
CT: The safer play is to buy the break above 34. But since the stop is going to be initially placed $28.6, it may be less risk to wait for price to drop below 30 before buying. Granted, buying on a drop below 30 may not necessarily be a high probability play.
CSE: buy a break above 16.5, stop=15.5
BPOP: buy @mkt if the intraday low is greater than 9.62, stop=9.45

Note that 8 out of the 10 closed below its opening price, so it should come as no surprise that they tend to move as a group. Note also that the above buying criteria is a assuming that the market does not move further down from here. Any significant intraday downtrend in SPY and XLF would invalidate all of the above buy scenarios.

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Thursday, November 15, 2007

Trading Results, Overnight Session Nov 14/07


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The cable and gold trades were from yesterday's overnight session. Wheat, ES, and the Loonie were this morning's trades.

I did not get a good sense of where the turning points were in Cable, but still went ahead and traded it and got burned.
I will post charts of the other trades I made this morning (Nov 15) if time permits.

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Tuesday, November 13, 2007

Swing Trade Update: Bank of America (NYSE:BAC)


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I had mentioned preivously that I would set my stop on my Bank of America (NYSE:BAC) at 44.

Well, lucky for me that I decided to change my stop before that happened. I lowered my stop to 43.5. The two worst selling days in the market were Nov 9/07 and Nov 11/07. On these two days, BAC put in a double bottom @43.6-ish. That makes 43.5 a natural stop loss point for me.
Initial Target is 49. If a trendline develops, I will hold for longer.

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Swing Trade : Mastercard Incorporated (NYSE:MA)


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I kept talking and talking about Mastercard Incorporated (NYSE:MA), and today, I finally acted.
Yes, I mentioned that I would be waiting until it dropped below $175 before buying. But in all honesty, I just didn't want to wait and wait until that happened.

There are 3 possible scenarios for MA: it goes up, it goes sideways, it goes down. My worst case is the possible scenario where it goes down, so my analysis will be for the scenario where it goes down.

Based on the above chart, I can see that the bulls took control of the 182 and 184 level. Today, there was definite resistance at the 186 level, but the bulls managed to take control of that level too. But the next couple days will tell whether 186 holds up as support.
Any sustained break below 188 will break today's uptrend. However, a break below 188 does not necessarily mean that it will breakdown, so I am not worried about a break below 188. A break below 186 would likely trigger some stops set by daytraders. But I am not holding this for a daytrade.
MA also put in an insdie day today, so the break of the HoD (high of the day), or LoD will signal a possible continuation move in the direction of the break. So, that means my first warning sign to get out will be a failure to break above 192.2 in the next 2 or 3 days. The second warning sign to get out will be if price stays below VWAP. The last warning to get out would be a break below the gap support @180. Breaking below 180 means that the two support levels above (182 and 184) have failed, so there is no longer any reason to be in the trade.

In short, a break below 180 for MA will be my "uncle" point.

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Trading Results for Turnaround Tuesday, Nov 13/07

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I saw something that does not occur too often in the S&P500 eMini futures market, and that was a box play setup.

Orange arrow highlights a trade that I spotted but was not able to get filled at my entry price.

Good points
- kept my losses small
- able to spot the box play pattern in real-time.

Room for Improvement:
- need to overcome fear of using wider stops.
- need to remember how to trade the box play. Whether the box play reached its profit objective of 1470 or not was not as important as knowing what the correct trading decision was at the time I was trading it. Even though there was no way of knowing the reversal at 1466, had I used the wider stop, I would have stayed in the trade, which would have enabled me to capture part of the breakout.

Not much else to say about today's results other than how I wish I was around in the afternoon when ES made its monster 25pt run-up.

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Monday, November 12, 2007

Trading Results, Overnight Session Nov 12/07


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Good points:
- made a plan, and followed it.
- trusted in my analysis.
- market proved my analysis correct (this one felt good, and I wish all trades were as easy and stress free as this one - everything unfolded according to the trading plan).

Room For Improvement:
- Always have a technical reason for exiting the trade.
- add an exit strategy as part of the trading plan. In this case, using tape reading techniques would have been the best way to time the exit.

The coordinated and correlated movement between the 4 major currencies (AUD, Loonie, Cable, Euro) occurred again tonight:

Note how the bull's party gets started at around 4pm for each currency.

I got a signal to short Cable on the break below 2.066, but couldn't bring my self to hit the sell button because I feel tired and now and plan to go to bed.

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Daily Numbers for Tuesday, Nov. 13/07


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ES Resistance @1455-1459, 1496-1500, 1524-1528, 1534-1538, 1548-1552, 1558-1561, 1574-1578
ES support @1420

POC=1462.50 (4-day downtrend)
Weekly Pivot @1477.5

Things are not looking good for this market. The dead cat tried to bounce today, but got beaten back for the second session in a row by the bears in the last hour of trading, a deja vu of what happened on friday. Markets are oversold now, but that doesn't carry much meaning these days, as sellers come out of nowhere and viciously beat down the bulls.

I am starting to get the sense that we may see another flush out like the one that occurred on Aug. 16/07. Note that that low of 1380 has never been tested by the way.
Anyways, tomorrow, will likely won't see another repeat of the selling in the last half hour, but by no means does that mean there won't be any selling. I do like the idea of selling at resistance and will plan for that trade tomorrow.

Some numbers I will be watching for other markets:


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Next on Tap: MasterCard (NYSE:MA)


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I had previously called Mastercard (NYSE:MA) a buy when it briefly dropped below $150, but did not heed my own advice.
Well, lo and behold, the market has decided to give me a second chance.

How strong is the current uptrend in MA? Well, in case you haven't noticed, every single financial and tech stock out there is dropping like flies. All solar power stocks were taken out to the woodshed today as well. Amongst all, this, Mastercard bulls have dutifully perserved the nice uptrend in the stock. The earnings gap is still considered a breakaway gap. If the markets weren't in a tailspin, I imagine MA might be touching 250 by now.
Mastercard has a great story and some great fundamentals, but what matters right now is the technicals. And what the above chart is telling me right now is that a buying opportunity is coming up very soon. Probably when it drops to the $170-$175 area will be a good buy signal. I will be looking for a reversal that occurs in that area as my entry point.

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Swing Trade: Bank of America (NYSE:BAC)


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As mentioned in my post yesterday, I had a bias to buy some Bank of America (NYSE:BAC).

BAC had a bullish bias right out of the gate.
If all goes well, this will turn into a position trade.
Bought @44.6, initial stop=44

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Trading Results, Overnight Session Nov 11/07


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S&P500 eMini Futures (ES):

My trading of ES shows that I did not trust my daily support/resistance numbers tonight. I have to work on that, my analysis is solid, why do I not trust in it???

Good points:
- exited my position when the market did not prove me correct.
- decisive with my entry and did not second guess nor hesitate
- pinpointed the major turning points for each market.

Room for improvement:
- be more patient with my positions
- press my winners correctly.
- trust in my ability to perform.

By just faithfully following the above three room for improvement points, I could have quadrupled what I made in tonight's overnight session.

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Sunday, November 11, 2007

Daily Numbers for Monday, Nov. 12/07


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ES Resistance @1496-1500, 1524-1528, 1534-1538, 1548-1552, 1558-1561, 1574-1578
ES support @1445-1449

POC=1463.50 (3-day downtrend)
Weekly Pivot @1477.5

Open gap @1555 (10/31)
Open gap @1450 (8/28)

The BPSPX closed below 50 this past week, and that combined with the fact that the McClellan Oscillator (NYMO) closing at around -70 on Friday indicates that we are going to bounce back up for the coming week, even if it is of the dead cat variety.
This is a perfect setup for playing the 7am reversal. Granted, I don't know for sure if the reversal will happen on Monday. But I think we will see the bounce sometime in the coming week for sure.

The financial sector has put in a bottom. It makes up about 22% of the S&P500.

Since tech has not yet put in a bottom, it is the wild card, and tech makes up about 16-17% of the S&P500.

For tomorrow, the key range for me to watch in the S&P500 eMini Futures (ES) is the 1455-1459 level. I'm not sure if that level is resistance or support.

I'm also watching BAC for a possible long - it looks like it has been so beaten up, that it is ready to bounce up a bit. Plus the 5.9% dividend is making it attractively compelling for my retirement account.

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Short the Loonie?


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It seems like the whole world is against the Loonie these days. I had previously mentioned that a newsletter purveyor had been recommending to short the Loonie ever since Sep/07. Now even Canada's own politicians are trying to stop the ascent of the Loonie. Although emotions are discouraged in this game, but just for the record, I do feel a bit of sadness that everyone is against the Loonie.

Believe it or not, the Loonie's uptrend is still intact, despite the vicious 4cent drop in the past 3 days. The 20d EMA is currently sitting @1.05, and the 38.2% Fib RT is at around 1.044. Both of those levels would need to break in order for the Loonie to be considered in a downtrend. And with no economic reports scheduled to be released for the coming week, only a USD$ rally can break the current uptrend in the Loonie.
The DailyFX article I linked in my delicious bookmarks called for USD to rally as high as 0.97 before correcting. That translates into $1.03 in the above chart. If the Loonie breaks below the 20d EMA and the 38.2% Fib RT, then I can definitely see that as a realistic scenario. The USD$ is starting to find support in the low 75's, so if it does start to rally off this support base, then that would mean a continued downward bias on the Loonie. But, it would also show up in the Aussie, Cable and Euro, so that is one thing I will watch for in tonight's overnight session, and over the next couple of days - a simultaneous movement in the four major currencies. I've seen this and posted about it on two previous occasions.

For the Loonie, if it can close above 1.082, then it will be able to challenge contract highs @1.104. But this will be a daunting task, as I believe there are plenty of sellers waiting at around 1.072 - 1.074. The more likely scenario which I believe will unfold this coming week is some consolidation inside the congestion area between 1.075 and 1.065.

Trading the Loonie will be difficult because there are several scenarios that could take place in the coming week, so if I don't see the simultaneous movement in the next day or two, I will mostly stick to scalping it for 10 or 20 ticks at a time.

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Top 5 Reasons Why Windows Vista SUCKS

Ignore this rant if you are a fan of Windows Vista.

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1. WinVista is incapable of running a full trading platform.
Ugly experienced the same issue that I have encountered on many occasions:
After running my trading platform for a few hours, windows explorer inexplicably crashes. Symptoms of this windows explorer malfunction include:
- clock stops ticking
- some "double vision" in my trading window, where a line of numbers gets duplicated into the line below it.
- chatroom connections run inside the FireFox browser gets disconnected.

As it turns out, they might have a fix for this particular issue that never occurred with my WinXP laptop.

But crikey, if WinVista was done right, then I wouldn't have make this rant in the first place.

2. Windows Vista is not backwards compatible with WinXP applications.
I tried to install the Wealth-Lab program onto my WinVista laptop. Their FAQ said to turn on the WinXP compatibility mode if you encounter any issues. Fine, I turn on the compatibility mode and still got the following result:

I goto download the exact same application onto my WinXP laptop, it installed and ran without barfing like how it did on my WinVista laptop.
So let me get this straight, WinVista provides a WinXP compatibility feature that is incompatible with the XP application that I want to run. WTF?

3. WinVista is even more bloated than WinXP.

Here is how much memory WinVista requires just to BOOT UP.

At one point, peak memory usage during boot up spiked up to 970Mb. WTF? On WinXP however, it only required about 220Mb for it to boot up on my WinXP laptop. It's already forced me to get used to waiting 16.6667 eons for it to boot up, why on earth does it need 1 freakin' Gigabyte of RAM just to boot up? I'm not running AutoCAD, I'm not running Half Life, I'm not running Visio, dang it, I just want to boot up.
Oh, but proponents will say that it needs the extra RAM in order to provide the new and extra features. Which leads me to my next point.

4. WinVista is unnecessary.
Let's look at some of the new features on WinVista.

IE7 - should be available on WinXP (whether it is actually available or not on WinXP is irrelevant; WinXP is capable of supporting and running this feature).
WinMedia Player11 - should be available on WinXP
Direct3D 10 - should be available on WinXP
32-bit Audio - why is this necessary when CD audio is only 16-bits ?
IPv6 support - not needed, since there is absolutely no one on this earth that is currently using IPv6
WinFirewall - should be available on WinXP
WinDefender - should be available on WinXP
PCIe v1.1 - should be available on WinXP
Encrypting FileSystem - ok
BitLocker Drive encryption - ok
HD Photo & WinImaging - should be available on WinXP
SuperFetch - just an upgrade of the prefetcher on WinXP
Flip3D - aesthetics
WinAero - aesthetics
WinSidebar - should be available on WinXP but don't rip off Google's sidebar, or Mac OSX's widgets!
Photo Gallery - should be availabe on WinXP, but DON'T rip off iPhoto!
Kernel Transaction Manager - should be available on WinXP if designed properly
Windows Search - ok, but only because Google's Desktop Search app made you do it. And do I need to say any more about ripping off Mac OSX ???

5. User Accounts Control is a Stupendously Horrendous Failure

I really don't know what to say about this User Accounts Control feature, so I'll let someone else get the point across.

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Friday, November 09, 2007

The ATS as a Tool

-Anonymous asked:
"You mention that you want to train yourself to make trading decisions in a more mechanical manner... And that you're a programmer by trade, so what I'm wondering is- Why bother making realtime decisions yourself? Why not code up a fully mechanical system to react exactly as you want?"

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The answers to your questions - 1. Because I currently don't have the luxury of an ATS to trade for me, and until I do, I will have to make the trading decisions myself.
2. I've never really seriously considered coding my own ATS, probably because I know I lack enough willpower and motivation to see it to completion. Also, I cling to the belief that it will be easier to train myself to trade off my pattern catalog than it is for me to program an ATS. I realize that that may not be a true statement, but the motivation factor is real for me at this stage.

I know that there has been a debate of religious proportions going on in trading blogland over whether computerized trading systems will take over the world as we know it. I'm realizing now that I won't make it through this post without forming some sort of opinion about that issue.

My take.

No amount of artificial intelligence will know what the correct trading decision will be in the following situation:

The above chart describes an observable scenario - the Loonie topped out. But the topping action is unmeasurable (there are no parameters for the above top), unquantifiable (there is no pre-defined, rule-based characteristic of the above top), and unreproducible - every topping action is unique. So without these 3 qualities, a computerized system would be crippled and be at a huge disadvantage to the discretionary trader.

That said, however, an automated trading system guided with some human input (in terms of what to look for, and when to look for it), will be able to bank big coin in the above scenario.
I started this post with a bias that the discretionary trader will beat out an ATS in any given scenario. However, now, I am thinking more along the lines of using technology to my advantage. To me, it is not a question of whether the ATS is better than me or not, what I realize as more important now is that I should use an ATS, because I believe it can improve my trading.

So, even though I probably won't program my own ATS, it may be worthwhile to investigate some existing ATS products out there, or even the hacked quasi-ATS from Boogster. Thanks to Anonymous for providing some perspective on this.

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Trading Results for Trend following Friday


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The fact that I actually made money today may very well be reinforcing the bad habit of forgetting to do what I say I'm going to do, which is trade strictly off of the patterns from my pattern catalog.
There's a couple more eMini setups that I want to add to the pattern catalog, so that I won't feel so restricted waiting the whole morning for a pattern to show up.
Hopefully on the weekend I will have some time to add to my pattern catalog.

UPDATE: note to self - always remember to look at the Forex Factory calendar of events for any pending economic event which may affect the market. Today, it was the Consumer sentiment number that was released at 7am - which I found out just now. Shame on me for not being better prepared.

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Thursday, November 08, 2007

Trading Results for Thursday

Specialists win, Generalists lose.

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After my previous post about training myself to trade off patterns in my pattern catalog, I still went ahead today and made a trade based on tape reading.

I don't think I will trade the 7am reversal exclusively, but it's interesting to note that this is the third time this week that this pattern has occurred.
I just need more practice to trade off my pattern catalog. So the journey continues.....

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Work is work. I am finding that after working in the same industry for over a decade, the duties and responsibilities of the position is more or less the same where ever you go, only the people and the corporate culture is different. In other words, what I did at my previous company, and the 3 or 4 companies before that, is more or less the same type of work that I am doing now, just the company and the people have changed. I am actually demonstrating this self-revelation by writing pretty much the exact same code that I wrote at my previous companies.

This is one of the reasons that I wanted to change careers, and take a crack at trading for a living as a vocation. My current job just doesn't offer me new and different challenges anymore. On the other hand, the vocation of trading for a living offered a ton of challenges, probably more than I was able to handle. And yet, I still come back to the same conclusion that I do want to take another crack at this vocation, and have started planning for it (though I don't know the time frame for this quite yet). Regardless, I would like to be better prepared the second time around.

Anyways, they say that all paths lead to Rome. In terms of trading, what this means to me is that you can try as many different approaches and trading styles as you want, but sooner or later, you will find that there is only one or two paths towards success. I've noticed in recent weeks that when I am looking at a chart during the trading session, I start falling into the habit of "I think it will do this." That is the wrong approach, because trading should involve no guess work.
What I think the right mentality is to look at the chart and ask myself, "is it currently displaying any pattern that I recognize?" Is it currently trading inside a box? Is it stalling out near a previous swing high/low? Is it currently 7am ? Is the current pullback shallow after the first thrust?
In other words, I need to start training myself to think only in terms of pattern recognition. Notice that the above questions imply a simple and clear cut binary decision. If the market is currently matching up to a pattern that I recognize, then I take the trade, otherwise, I do not take the trade. That is the path to my edge.
This conclusion seems so obvious that I wonder why I even need to talk about it. But I have to record it into my journal, because throughout the trading session, there's a lot of self-talking going on in my head, and this leads to distractions, and even worse, second guessing. So, going forward, I will work on trading only off the patterns in my pattern catalog. What this really means, is that I will train myself to reduce all that distracting and perhaps even negative self-talk, and replace it with a binary decision making process - at least when it comes to trading.

UPDATE: Jason from Leavitt Brothers says the same thing I am saying, but probably much more effectively.

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Calling All Wolfe Wave Practitioners

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Linda Raschke identified a nice Wolfe Wave pattern in the intraday session last week:

So with that in mind, if you, or someone you know of, is a Wolfe Wave practitioner, then please refer to the following chart and let me know (assuming that today's intraday low of 1455 holds up as the swing low) if this is a Wolfe Wave.

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Tuesday, November 06, 2007

Daily Numbers for Turnaround Tuesday, Nov. 6/07


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ES Resistance @1524-1528, 1534-1538, 1548-1552, 1558-1561, 1574-1578
ES support @1496-1500

POC=1506.25 (3-day downtrend)
Weekly Pivot @1424.25

Open gap @1490 (9/17)
Open gap @1517.50 (11/2)

We've reached oversold conditions, and support in the high 1490's has held up well, and futures is slightly up in the overnight session, so I think the stage is set for a relief rally tomorrow, even if it is of the dead cat variety. The only thing that would prevent a rally would be news of yet another subprime shoe dropping. I think we will see a tag of 1517.50 to close the gap, but I'm not sure how to play it, since it's hard to find a low risk entry.
Perhaps if the 7am reversal plays out according to expectations, we might see a run up to 1517.50, and perhaps even beyond to resistance @1525-ish.

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Monday, November 05, 2007

Trading Results for Monday


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I traded the 7am reversal today.

Trade1: Short@1506, stop=1507, exited@1506.25
Trade2: Short @1509, stop=1511, exit=1508

Unfortunately, I also traded for a 1tick loss just prior to the 7am reversal, and was unable to shake off that trade. It made me second guess myself, and I got scared out at the first sign of what smelled like retrace to me.

I'm almost tempted to impose a rule for myself to not make any trades until after 7am.

The 7am reversal was a beautiful setup today, would have been good for 3 points without any meaningful retrace - if I hadn't messed myself up with that prior trade. Buying at support @1500 would have been a pretty nice play as well, but I had just woken up and was not yet prepared for trading.

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Sunday, November 04, 2007

Daily Numbers for Monday, Nov. 5/07


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ES Resistance @1524-1528, 1534-1538, 1548-1552, 1558-1561, 1574-1578
ES support @1496-1500

POC=1507.75 (2-day downtrend)
Weekly Pivot @1424.25

Open gap @1490 (9/17)

Well, thanks to yahoos like the Meredith Whitney's of this world, it looks like the November rally that I talked about is in jeopardy. The winds of sentiment change are blowing about.
China looks like it is topping out. Everyone and their grandma's pet dog is saying that the American economy is the most influential economy in the world, but the last time China sneezed (back in Feb/07), the US markets caught a cold.

The trend day selloff from Oct. 19/07 was the warning shot across the bow. The BPSPX is in no man's land, but unfortunately, never recovered from that day's selloff and now it has been trending down.

Everything not tech is looking a bit ominous here.
The market really needs to take out 1530 in order for the up trend to be intact.
But as for tomorrow, I think we will see another retest of the 1500 level. On Linda Raschke's site, she put up a chart indicating 1509 as a potential make it or break it level. Overnight futures session is currently down just over 0.5% from Friday's close, indicating an increased probability of a gap down to open the week tomorrow. If we don't test 1500, then we will likely see a run-up to test the 1525 level.
These will be the three numbers that I will be watching for tomorrow's session (plus a possible 7am reversal play).

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Friday, November 02, 2007

Review of October

The Highly Effective Traders says, "Confidence is all about trusting in your ability to perform."

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I made just over $2000 this month. The funny thing was that the majority of those gains came from two big days that I had near the end of the month. These two trades are certainly the highlights of my month. The funniest thing of all is how those two trades came after I was no longer trading on a full-time basis. I'm not sure what to make of that, I will have to contemplate it some more.

The low part of the month was near the beginning, where I spent a lot of effort into planning out and making trades that never came to fruition. I kept looking for big moves that never materialized. And to add to the frustration, I became impatient with the trades that I was in, and the market would taunt me by moving in my expected direction only after I exited the trade. Disgustingly frustrating.

I have also started trading the overnight session on a consistent basis. The good part about night time trading is that the action is slower, but no less volatile, so you get more time to think and react to make a decision. The major downside to night time trading is that sometimes it is not volatile at all, so there is nothing to act upon.

This month, I've noticed that I am relying more on trader's intuition. In the Euro trade, it went against me not long after I put on the short. But I kept my stop in place, and I had a sense that it would not hit my stop. I just "knew", and it was only later when I reviewed the trade that the indicators (Fib retracement, and downtrending VWAP) confirmed what I just "knew" at the time. In the S&P500 eMini trade, I just "knew" it was a First-Thrust-pullback reversal pattern, and was undeterred by my initial failure at trading the pattern. I am at peace when I am in synch with the markets. I get flustered and am prone to taking impulse trades when I am out of synch with the markets. That's when I try to make the chart look like a pattern that I know, or stubbornly cling on to the belief that the reversal is right around the next tick.
Knowing what to expect really helps to create your edge, regardless of whether you arrive at it from using a set of indicators, or using your own trader's intuition, or a combination of both.

Having a hypothesis or mental model of the market session is like saying, ".... my analysis says that there should be some buying support at xxx, so if it reverses at that number, I will go long.", or, "the markets run-up 6pts and now it's 705am, if it drops below this number, I will go short." So, it's not like calling a top or bottom at all whatsoever.

So, time permitting, I will continue to publish my daily numbers, because that helps to form my own mental model of the markets. I actually had worked out the daily numbers for today, but just didn't have time to publish them. In fact, I know my numbers are good, now I just need to figure out how to make use of them and control risk at the same time.

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Thursday, November 01, 2007

Burned by the Beans


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The Soybean futures market behaves totally different from the stock index futures, and behaves very differently even from the other grains (corn and wheat). Now I have the rest of the day to stew over what I did wrong. Probably the first one is to ask myself why I jumped into trading this market so impetuously without first studying it some more to develop an understanding of its characteristics.

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