Buying in a panic lessons learned

Discussion in 'Trading' started by Port1385, Jul 23, 2008.

  1. I dont claim to be all knowledgable like the many multiple duplicate aliases on elitetrader like Landis and Robbie, but I do trade real money in multiple positions for the short-mid term swing. Im not a daytrader flipping es contracts, but just a lowly equity guy who waits patiently from week to week for a good setup. So here today I post my lessons learned of buying into a panic.

    As you know, I have posted many times about my bullishness of the financials. I have made many posts about buying into FNM, BAC, UYG and a few other notable names.

    A few months back I read that Warren Buffet had invested himself into WFC and BAC. If Warren was invested in these stocks, then I knew that they wouldnt go out of business, but they would certainly feel a little pain in the mid-term. Notable fund managers from Fidelity were also buying in early on too which gave me confidence.

    So I started monitoring the volume/price on certain stocks that the funds and Warren are invested. One that caught my eye was BAC. I knew it was going to get real low, but it wasnt going to go belly up like Indysmack.

    I saw BAC downtrending, the volume reaching higher/higher and decided to start my first position around 30. As the volume increased, I suspected there would be a point where it would turn around, but where? Every 10% down, I averaged in more and more. At around 20, I doubled down with my largest position ever. Then when it took off with the 3 white soldiers I bought more. It was definately scary at 18 and the volume at 200 million as if this was the end of the world.

    Now BAC hit a high of 34 today. Im happy with how this trade went and will keep buying more as the price goes up. When the price finally dips, then I will sell with an automatic trailing stop.

    The fundamental of this trade is that the failure of Indymac made BAC only stronger. Who will do business now with smaller banks? I believe everyone is going to focus on larger banks such as WFC and BAC. This will easily hit and probably go past its old lifetime highs in a year or so. Why bank at Washington Mutual that appears to be a wreck when you can place your money into someplace safe like BAC?

    I definately got in too high at 30. There will be a next time and I will when the volume gets higher before establishing my position.

    I wouldnt do this with an ETrade or a WM that will probably go bankrupt, but with a company that I know will not fold. Warren has never placed his money into a company that has folded. I know BAC wont fold;)

    I bet now that I will hear from the peanut gallery which consists of a few ugly guys in Wisconsin on macs with 20 duplicate aliases who will tell me what a fool I am.

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  2. Port

    Nice trade with a good result.

    Did you have a plan B or exit strategy if it all turned sour? IF so what was it if not why not.

    Thanks in advance
     
  3. No exit strategy here because I knew that BAC wouldnt fold. This is also an election year and Congress/President wouldnt let these large insitutions fall into the drain. No way. Buffet placed his money in these large banks so I thought I might as well spin the wheel too.

    I gambled with FNM and FRE the same way. Would the body politic allow such a disaster? I thought not.

    If you look at the chart formation from January to about mid April you can see price spinning into a triangle. This suggests to me that the target would be ultimately 18. PnF chart also suggested such a target.

    I should have "trusted the charts", but instead I decided to average in on the way down because I told myself that I didnt know where the bottom was at. That was my biggest mistake with this trade.

    I also found that the $BPFINA would have been good to use. Look at how nicely this chart predicted the bottom.

    http://stockcharts.com/charts/gallery.html?$BPFINA

    I was highly diversified in my trading the last few months. Some were losers (FMD...) while others were the lotto trade like getting into FRE in the single digits. Some mixed results like FNM and BAC where I averaged in all the way down and made money following it back up.

    Lessons learned
    1. "Trust the chart"
    2. Study and follow the past history as it most always repeats. In this case, mid-July has been one of the weakest months. I was going into some of these positions in June...too early.
    3. Utilize other helpful breadth charts such as the bullish percentage and moving average charts demonstrating market breadth. Wait for really notable lows.
    4. Volume before price change. In this case with BAC, I saw the volume moving up and decided to swing in. Too early. I should have waited for the volume to increase to at least 2-3 times the average before swinging in. There is a term that they use "crescendo low" where volume is at least 4 times average and there is a notable low. I didnt wait for that;)

    I guess no one indicator works and no one indicator works all the time or forever. However, I think its wise to use these tools so as to create a more probable outcome. Trading is basicly gambling to me. I dunno what the next card will hold and simply using these classic indicators increases my chances of success, but there are no guarantees.
     
  4. do you make money while you are 'waiting'

    opportunity cost of waiting.

    financials had temporary technical relief rally from banned on shorting..




     
  5. does'nt make any sense to me. you bought and then bought again when you realized you were wrong. that as was luck my friend and you could of been married to BAC for years and spent endless nights on message boards asking others why they are not buying BAC when the valuation is so compelling. been there,done that. it was a lucky trade and to buy a stock just because warren buffet bought it is a foolish move.essentially you were buying a falling knife and IGNORED any kind of exit strategy.
     
  6. You made a great trade. My hat's off to you. The move in BAC over the past week might be unprecedented. I have formally researched it but I don't ever remember a company GAINING $80 BILLION in market cap in a week.
     
  7. PortJerkoff

    You have the single worst track record of calls in the history of ET.

    Go back to playing World of Warcraft and stop polluting this site with your never ending drivel.
     
  8. Firstly congrats on your trade so far. I think your reasoning to buy the stock was pretty strong.

    I do respectfully disagree that buffet cant make a mistake as well as it couldn't fold but I think its also ok to disagree.

    I would add one point though that you may or may not have thought of. What would have happened if the stock tanked from 18 and Buffet decides to dump it?? What if it was found that the CFO was cooking the books? Just something to think about.

    Also, not everyone in Wisconsin uses a mac.....LOL

    Best to you

    Bob
     
  9. I learned some lessons from this panic, it wasnt perfect, but it made $$$. Im not a perfect gambler nor am I perfect trader. Its not easy sitting around a poker table and being profitable just like its difficult sitting around a few monitors and being profitable. The key is emotion and cutting it from the poker table and just focusing on the cards and the probability.

    Im looking towards the next panic and learning from my mistakes. What I do is look at the 9 sector etfs of the SPY for guidance. The following graphs show the start of a panic in energy. Its going to take a while for energy to unwind, but Im very certain that by this time next year XOM will be in the same situation as BAC.

    I've been studying the relationship between Exxon and Oxy for a while. Oxy tends to be a faster mover then Exxon. Exxon is this big slow moving energy stock while Oxy is its fast moving counterpart.

    After such long record runs and bullishness, its hard for a trader to open up a short position on Exxon/Oxy. Sometimes the most difficult thing to do is the wisest thing to do. I think its time though because rule#1 is to trust the chart. If these get much lower, then I think it will be that time.

    It will be time to buy Exxon on again when it gets to 40 and Oxy when it gets to mid-50s.

    DUG and AMR really interest me. AMR and DUG both on the long side. This cant be anymore obvious. You can probably double your money with DUG by the end of the year. CAL is looking very good too, but I dont have it here on the charts. I would probably go with the safer CAL.

    Im going to study this a little more before I get in on these long airline/short oil trades.

    Look at DUG. It looks like a reverse BAC. See the triangle? See the volume? My target on DUG is 55.

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  10. Thanks for the info Port. Don't stress over the ET politics.

    I agree that what we do is just another form of gambling. You just need to recognise the high probability set ups and have the resolve to press the trigger on them.

    I do have a related question, after you take a position how do you determine when its time to throw in the towel?

    Cheers
     
    #10     Jul 24, 2008