Monday, December 31, 2007

MasterCard, Oh MasterCard Incorporated (NYSE: MA) !

One of my favourite stocks to trade.....

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One thing that I have noticed with my trading is that I tend to talk only about my winning trades. The reasons are probably all pyschological, but that has got to change, so now, I will shine the spotlight on my not so great trades as well.

I've been watching MasterCard Incorporated (NYSE:MA) for a couple of weeks now. Over the course of these past two weeks, MasterCard has been putting in a classic ascending triangle pattern. It has also shown up on one of the screens in Alan Farley's website.

Conventional wisdom says that the typical way to play an ascending triangle pattern is to wait for the breakout (above the red zone), and buy the breakout.
Well, the way that I like to play it is to buy on the reversal of each higher low. In other words, I buy each time it tags the (upper sloping) blue line in the above chart. The reason I like to play it this way is because it keeps my risk low, super low.

Anyways, that was the theory. Today, I didn't have patience to wait for it to tag 211, so I went ahead and bought when it broke above 214 (my actual entry was 214.12). But I also knew that there was the possibility of it dropping down to 211 and still not violate this pattern, so I only bought a half position. If it does pullback below 212, I will then go long on my other half position if there is a buying surge that takes it back above 212. I will be watching the 10d EMA line as my guide (which is currently at 210.6).

With MasterCard, because my first entry was not ideal, this trade could turn out to be one of those not so great trades. Especially if the market tanks in the first week of 2008.

Long MA @214.12, initial stop=210, target= 224

I am still long POT @143.1, no change to the stop@142.5

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Year In Review

The future belongs to those who believe in the beauty of their dreams.
- Eleanor Roosevelt

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My first year as a full-time trader sucked. It also humbled me enough to go back to a salary 9-to-5 job. There were reasons which could explain my poor performance, but I'd rather not hide behind those excuses. My performance sucked, and I've had time now to think about everything that I did wrong.

But it is funny, and Tyro Trader asked me about it earlier, now that I don't feel the pressure to perform, I am "seeing' my trading in a different light. It's kind of hard to explain in words, so perhaps I'll let my journal entries about my swing trading in the coming weeks do the explaining for me.
It's also given me time to think about how I will change my approach when the time comes once again to perform under pressure. I never feel comfortable in admitting that I need help, but one thing that I know that I must do before I jump back into trading full-time is to take a trading course.
But, I probably need to get my finances in order first (ie. get my moving done and out of the way), before I take any further steps.

So at least in that sense, having to place the pursuit of my dream of trading full-time successfully, on hold temporarily, is not a total psychological defeat for me, because I am learning, and learning about what I must do to change my approach.

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Friday, December 28, 2007

Swing Trade: Potash Corp (NYSE: POT)


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Potash Corp. (NYSE: POT) filled the gap up from 2 days ago, so I have decided to go long again. But this time, it is only a half position, since the market is vulnerable to further downside.

The green zone highlights what I think should be intraday support. The strength of this support zone will likely depend on the overall market, meaning that this is not a defined support/resistance level ( defined support/resistance levels are only truly known in retrospect). In a way, I am betting on a market bounce from here, even if it is a dead cat bounce.

Long POT @143.1, initial stop=142.5, target=150 (and this time I will not be so greedy).

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Swing Update:, Inc (NASDAQ: AMZN)

"Greed is good."
- Gordon Gekko

...... Oh really?

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I bought Inc (NASDAQ:AMZN) yesterday at $94.3, with the initial stop @93.8.

My first thoughts when I saw the above chart this morning was, "Wow, what a sweet trend!". Then the realization that nothing can move upwards without taking a breather sobered me up.

AMZN reached my target of 95.50 (which would have given me over 2R on the trade), and I should have sold, but instead, I got greedy. Despite what Gordon Gekko says, greed is bad, especially bad on thinking and acting objectively with regards to my AMZN trade.
Anyways, I've made enough mistakes to know that I must and will sell when AMZN breaks below the above manual trendline that I drew, and stays below the trendline for more than a couple candles.

That housing report which led to this morning's 7am reversal gave the bears momentum for the second day. Gap filled, and now many sectors are falling into the red.
I sold AMZN at $94.22, gain of -$0.08, or almost -0.2R.
Will be watching both POT and AMZN for another low risk entry, but will probably need to first wait for this latest round of selling to run its course.

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Thursday, December 27, 2007, Inc (NASDAQ: AMZN)

Another swing trade

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Sold my NYSE:POT at 146.75 for a nice $18 gain. This market has no room for hope, and yet I am "hoping" that POT will pullback enough to give me another opportunity to swing it.

In the meantime, I took the proceeds and bought me some (NASDAQ:AMZN).

Today's intraday action in AMZN kind of reflects its daily chart. Here is the intraday chart from the past 5 days:

Here is AMZN's daily chart:

The important points that I get from the above charts:
- Amazon is in an uptrend in 2 different timeframes: the daily and the 15-min. intraday.
- Amazon displayed the same V-bottom pattern on both the daily (occurred last week) and the 15-min. chart (occurred about 1hr ago). This one was interesting to me, since I don't often come across the same pattern repeated so clearly obvious on two different timeframes.
- Amazon is in a period of seasonal strength.

Anyways, I was watching it in the morning, and when QQQQ decided to stop going down, I bought AMZN @94.3, initial stop @93.8, initial target=95.5, but will re-evaluate at that price level.

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Thursday, December 20, 2007

Aggies are On the Move


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As mentioned in one of my previous posts, Aggies should be one of the hot sectors to watch in 2008. Today, there was clearly a sector wide breakout.

Picked up POT @128 today.
original stop=126, target=134. But if it acts healthy at around the 134-ish level, I will keep it and let it run.

RIMM refused to breakdown below $99 in the past two weeks, and now it has zoomed up to $119 in the after hours session on the good earnings report. This combined with Oracle's feel good report, might be enough of a catalyst to set off a market rally for the last week of the year. If that unfolds the way I think it might, then I will definitely hold onto POT.

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Wednesday, December 19, 2007

My Thoughts on Turtle Traders

JMJAtlanta said...

I'm interested in your thoughts on the books you're reading and whoever "Theresa" is.

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One book that I have started re-reading in recent weeks is "The New Market Wizards" by Jack D Schwager. In particular, I wanted to re-read the interview with William Eckhardt, one of the two people who became famous for the Turtle Trader experiment. (Richard Dennis was the other person).

Bill Eckhardt once said:

"Anyone with average intelligence can learn to trade."
Eckhardt was actually the one who opposed Dennis' view that great or successful traders can be taught. But somehow, in the course of conducting the Turtle trading experiment, his views changed, which of course led to the above quote.

Anyone can learn to trade, that is true - on the surface. However, that statement comes with subtle complications, so I wanted to peel the onion a few layers in order to see what is the truth that lies beneath.

The whole notion that successful traders can be taught is built on the premise that the concepts of successful trading can be reduced to a finite body of knowledge that can be documented and taught to those willing to learn. It would not be a stretch of truth to carry the premise espoused by Dennis & Eckhardt one step further and offer a "Trading 100" and "Trading 200" academic program, complete with a Bachelor's Degree. The Turtle Trader website offers a course in trading successfully, and indeed, they are one of vast plethora of teachers, coaches, and mentors who offer to teach you to be a successful trader.

I don't question that a certain level of knowledge of trading is required in order to be successful. However, the interview with Eckhardt in the Market Wizards book left me with the impression that knowledge of trading is sufficient for success. After all, anyone can be taught to be a great trader, right? If anyone can be taught to be a great trader, then why isn't everyone and their grandmother a great trader ?

The more contemporary view of trading nowadays is one that is founded upon a performance based model. More and more respected traders have talked about how trading is a performance activity, and how trading is better compared with performance sports like a basketball player or football player than with a knowledge based vocation like Engineering, or even lawyers. And I think it just makes plain sense to think of, and to model trading as a performance activity: you get paid (or even penalized) based on your performance, you have to keep practicing and practicing dutifully, diligently, and without end on certain aspects of trading in order to improve, each day that you trade (ie., game day) is really a performance test of how well you are internalizing everything that you have learned and practiced, and you are constantly in competition with other (anonymous) traders. And in that sense, a star trader is no different from a star athlete.

You know how to play basketball. I know how to play basketball. So why aren't we both in the NBA, pulling down those multi-million dollar salaries? Simple, it's because we don't perform as well as a Steve Nash, or a Kevin Garnett. It could be that they were born with it, or they worker harder at becoming better, but they have developed a higher level of skills at playing basketball. That's the unfortunate part about aspiring to be an athlete - the pre-requisite skill set and aptitude is more at a physical level. My performance as a basketball player is only as good as my physical abilities.

And along that same line of thinking, I've read a few books on trading, and though I haven't yet taken Teresa's trading course, I have signed up for more than one trading service and/or product on more than one occasion. I feel that I have some knowledge of trading, so why haven't I become a successful trader? Simple, it's because my performance just was not good enough. There's a million different reasons to explain inadequate performance, but at the end of the day, the path towards successful trading can be boiled down to having at the very least an observable trading system with at the very least an observable edge (as opposed to a measurable or controllable edge), and the desire, patience and discipline to follow and trade within the rules of your system, day in and day out.
That's what I mean when I previously said that all paths lead to Rome. The reality is that the ability AND the capacity to follow the rules of a trading system will inevitably depend on my attitudes, behaviours, and aptitudes, and these things just can't be taught, no matter how you slice and dice that.
My physical abilities are finite and can't be changed, but fortunately, my performance as a trader is dependent more on my mental and emotional skills. And by that, I mean that the degree of success that I can achieve in trading is governed by my capacity to change and internalize the right attitude, behaviour, and aptitudes. It is always a process that takes time, and a learning process at that.

So, yes, anyone can be taught to be a successful trader, but at the same time, there's a lot more to it than just that.

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Thursday, December 13, 2007

Possible Hot Sectors for 2008

Recession or no recession, there is always a bull market somewhere.
Some more ideas for my retirement account.

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I mentioned agricultural sector in this previous post as a sector in an uptrend. I get the sense that that sector uptrend in the aggies will likely carry well into 2008.

One that has flown under the radar are the exchanges.
Although the 6month timeframe paints a more mixed picture, something did happen around October, and now half of the exchange stocks have started to trend up.

And of course, there is the old reliable oil sector:

Swinging some of the above oil stocks during Jan-Feb sometimes works, but the higher probability play might be to wait until late spring, when everyone is gearing up for summer driving season.

Solar is still pretty hot right now, but I can't help but wonder when the party will come to a crashing end.

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Wednesday, December 12, 2007

S&P500 Analysis: Recession?

This market analysis will help me to figure out what to do in my retirement account.....

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Couple of observations:

  • If SPY closes below 140 for more than 2 days, then the market is telegraphing a recession.
  • The selloff post FOMC was a vicious First Thrust, which pulled back around 80%. Smells like a new down cycle has started. Failure to close above 150 will confirm. This also happens to be where my manually drawn trend line (in the daily chart) is currently sitting.
  • The 147 - 147.5 level in SPY is also the convergence of the 10, 50d EMA, and 200d SMA. A close below this level for two days or more would also confirm the new down trend.
  • SPY really needs to break above 152 in order to keep this rally alive. Unfortunately, SPY cannot rally without help from XLF, and guess what, XLF broke down today.
  • All of my tells are starting to look a bit toppy and weak here: MA, AAPL, RIMM, GOOG, GS, C, IBM. RIMM is fighting to stay above 100, and also fighting a descending triangle pattern. AAPL can't get past 196, and the gap @180 is starting to act like a magnet. The 50d EMA (and a declining one at that) has convincingly capped any rally attempt by IBM. GOOG broke below 700 again.
  • UWM, QID, DXD and SDS are building some nice bases here.

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Plan for the next couple of months

Even though I will not be actively trading for the next month or two, that has not stopped me from continuing to monitor the ES market.  One thing that I have noticed is that in the overnight session, it is usually quiet, but if there are any big moves in the overnight session, then it usually is a precursor of a big move in the regular session as well.  For example, this morning's bounce in the market was started off with a +13pt uptrend in the overnight session.
Of course, a big move in the overnight market is not a pre-requisite for a big move in the following regular session.

This year's big sector winners was the solar sector (which I mentioned a couple times in this blog), and shipping.  The agricultural chemical sector started perking up in the latter part of this year, and should continue into next year.  I am already monitoring AGU and POT for a pullback entry in my retirement account.  Obviously I am interested in uncovering the next big sector, maybe this time I will be prepared to jump onto the sector trend.

The other plan for the next couple of months is to continue to work on my ATS.  I've been trying to find time here and there to code up a very simple ATS.   Progress has been a bit slower recently because of various distractions.  Plus, I have to remind myself from time to time why I am doing some more coding after doing already 9+ hours of it at work.

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Current State of Affairs

"We are what we repeatedly do. Excellence, therefore, is not an act but a habit."
- Aristotle

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The last daytrade I made was on November 20, 2007. It was a $350 loss on a Euro short. After that loss, I decided to take a break from trading. I spent a lot of time researching stocks for swing trading, but not really finding anything to get me into a routine. So between the 20th and today, I was mostly just watching the markets, and occasionally buying some stocks for my retirement account (like those dividend paying stocks that I mentioned in this previous post).
Like most retirement accounts, I cannot short any stocks, so the better part of November was spent mostly watching stocks go down. Kind of sucks, but at the same time, educational.
I also spent some time reflecting on my futures trading. I got close to settling into a routine of trading only the patterns that I listed in my pattern catalog. I can even visualize what I would do differently once I get back to trading futures. I think one of the things that I was stuck on was being over focused on making sense of every little tick, and in the process, losing sight of the bigger picture forces and trends at work. Kind of like zooming into a picture @400% for most of the day, when you need to zoom out (more often than I realized) in order to get a sense of where you are.
But for now, that visualization of what to do will not be actualization yet, since I will need to take out a big chunk of my trading funds in preparation for moving and all of its associated costs (moving expenses, closing costs, cleaning costs, etc). Within the next 3-6 months, my family will be moving to another house, assuming that we can find something that meets both my wife's and my own criteria. The reasons for moving are mostly financial, as without the extra stream of income we used to have when my wife was working, and with my trading income being inconsistent (ie. inadequate), it was prudent to reduce the size of our mortgage by moving into a cheaper house. Plus, downsizing the mortgage would also enable us to replenish the rainy day fund that was drained by my wife's health issue.

I suppose one could say that I should have gotten my finances in order before getting into the vocation of trading for a Living. In my defense, I should point out that my decision to pursue this vocation was based on a unique situation at the time - I was laid off by my old employer. I still remember on that day that I went for a walk to a bookstore nearby and started flipping through a book about starting your own business. It's hard to believe that it's been already a year. What do I have to show for this length of time? A few thousand dollars of trading income that has long disappeared into bill payments, and some head knowledge about do's and don't's of trading.

Yes, my trading life has gone through the first-thrust stage and is now at the pullback stage. What will happen next? Stay tuned, because even I am curious to find out the answer.......

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