Trading Journal, January

Hee,Hee, Hee! Now THAT'S a quote! Your grandmother is funny and wise... is she from Texas?

 

Since we trade side by side, and I have total confidence in you as the best player on my team (or at least the one that I would bet my account on to make it), I try not to talk to you too much as I want you to eventually develop your own style. So as always, take what I tell you as suggestions not "expert opinion", view me as a buddy not a manager

Well, for starters, when you get into something you have to ask yourself is this something for a quick pop or something that actually has a chance to trend, or in the case of a reversal, make it to the next resistance level.

You need to decide whether you are taking something for a scalp or you actually believe it has a chance to go up say, half a point to a point. Keep in mind some of the greatest weaknesses in our strategy, we play a highly reactionary game, the epitome of "trade what you see", we trade a lot of different stocks with very different ranges, volatility, and tape action, which makes it hard to get the true feeling of a stock. When something as exotic as an airline pops up it is very hard to guage how much is it capable of moving given the index strength. It is so important to have go-to stocks and I have yet to develop something that I am confident so much about that I would put a bullet on it every single day.

If you think it is going to move that much then use the low of previous candle's on 5 minute charts (significant ones) as a mental stop would work wonders. Chart based stops work for NYSE but you don't want to key them in there as the specialist would blow them every time.

For every full point move you missed you also saved yourself from many potential quarter point stop out's (in afternoon trading, with thin volume, that can happen every time). It is a balance between offense and defense, and the ultimate level of trading would be to know exactly when to take a quick scalp and when to let it trade.

Off the open, defense is the key, until 10 AM you should be happy with whatever profit you can take off the table, the moves are big and powerful anyway and if you are right you will score a lot. When you got out of that airline trade it was legit defense when the offer showed up, the key is to keep on watching it and look for re-entry's (like when/if he hits it). Manage your 500 shares as if it is 1000 shares, sell 200-300 and hold 200-300 when the index is going up, so you will keep something and get ready to add back in, like when he smacks out the offer. Keep some shares and don't be afraid to let it go back near break even point, where you may actually add more if the tape looks good. I was in the money 20 cents in two prints after I took CCU this morning and I held half it all the way down until he broke my break even point. That is of course a bad example of "hold on to some shares", but I find it much easier for me to hold on to a partial position when I know by looking at the tape the stock will come down for sure, and it did help in my afternoon MXT trade as I kept some and added more when I thought the coast cleared.

Pare in and out of a trade is the key to trading size, and I haven't seen enough of that from you, most of the times you go in with 500 and out with 500, and since I am upping your size limit as soon as I take over the helm, it helps if you start pare in and out more so you can prepare yourself for bigger sizes. At some point in your career you will be doing 2000 shares and you do not want to go in and out with all of that. Treat your 500 shares as if it is 1500 shares, you must respect the size you trade if you want to move higher, micro manage it if nothing else is going on. Pare out say 200 when the broad market feels weak and you don't like what you see on the tape, hold the rest to break even point, etc . . .

In afternoon trading I still micro manage 500 share positions (as soon as the BID is out I get out 200 and I sit through a small wiggle, BID reappears I go for 200-300-400 more etc . . . )

After 10AM look for stocks/sectors that broke yesterday's high and low's (coupled with broad market action of course), personally with the exception of big reversal's I would only use chart or indicator based stops on something that broke yesterday's high/low within first 45 minutes of the game, it is more or less a rule of thumb.

Keep in mind a lot of your filter trades (even regular trades) are basically in and out's for a quick bounce, when you get into that zone of mentality it is hard to hold on to the whole thing for a big gain. Not to mention all of those energy bottompicks (I do a lot of them too, don't get me wrong, it is addictive), you can't let those things trade against you, especially in the dead zone.

If 60-70% of your trades are reversals, you get into the groove of taking quick scalps, and it is hard to break that habit when a good trade does enter the picture. Also, never be too happy with say a quick 50 cents profit, the quicker you get that profit (especially earlier in the day), the higher the momentum, as chances are there will be a continuation after say a brief pullback, where you can go for a second leg. It has been a serious weakness in my own game that I take the first leg flawlessly with perfect anticipation (which is a tough trade) and miss out on the next leg (which is a much easier trade especially if you already made money and are playing with house profit). Remember that other day we did EPG and it went up 2 points without a single downtick, after a 1 point pullback it went up another point, and I never touched it. Try a partial position when you are not sure whether a pullback will stick and go for the full lot when the BID appears.

Last but not least, we still have some nasty "how high can it possibly go" syndromes. I was talking to you about a rally into the close at 2PM. Market was strong, tech/financials all up, no sign of giving in, another leg inevitable. What did we go long in? Instead of the strongest sector of the day (SOX), you went for energy and I went for credit service, you took a low tier stock ADP (which worked) and I took a even lower tier stock (WDR lol, dead stock).

When you have a strong biase about the direction market will move you gotta go for the heavy hitters. I really really wanted to go for SOX but I could not break the "how high can it go" syndrome. I watched many SOX stocks with a BID just about to breakout, and I knew I had a close BID to bail on, yet I passed them up in favor of weaker stocks that *may* join the party.

A big part of my morning game is laggers but I noticed continuations (pullbacks on strong stocks) work much better for afternoon trading). As I said, it is hard to break the lagger mentality, but hopefully given time we will set things straight.

Hang in there, you are doing great, I expect a huge year from you.

Get your S55 ASAP, so you can start doing bullets. There is nothing wrong with energy sectors. OSX was simply amazing yesterday, so good that it made me mad for missing it and went for two bullets today and smoked off the open lol (still recovered all of the losses even with that GSF guy lol, a wolf in a sheep's skin

The biggest mistake of the day for us was NOT capitalizing on a sizzling Nasdaq, I liked the way I handled energy, it was about the best job I could have possibly done given the circumstances.

I mean, yesterday it was down sooooo much (and I knew it was a bad idea to bottompick something broke down from a consolidation on the daily, and went down THAT much, same thing with top picking SOX today, but I did it anyway and took small hits).

Today, after a big sell-off, it was almost impossible for it not to be choppy, and boy did they pack a nasty surprise for me right off the open.

One of the things I learned from Tony's book is the infamous three day reversals. Never ever pick bottom on the first big down day of something that has been on an uptrend or consolidation, but after two big down days, I think the third day tommorrow *may* provide at least a serious squeeze, and I will look forward to it.

 

I think backtesting intraday trading strategies for individual stocks on NYSE is total garbage. I know those of you who favor Nasdaq typically hates/sucks in tape reading and can't wait for the open book to render tape reading obsolete. We will see what happens by the end of this month.

A trader not paying commissions is like a business without overhead expenses.

I would estimate the average ratio for consistently profitable traders at my firm is 1:1, for every dollar of commission you pay, you get a dollar in net P&L.

Traders who take less shots will have more volatility on their P&L, but their net/commission ratio will be higher. Traders who take more shots will generate more commissions but reduce the volatility on their P&L.

In the end, it is impossible to put up big numbers day trading without generating a large commission bill. For me I don't ever take commissions into consideration. If I don't like a position I get out no questions asked, I may get back in a few minutes later, so what. Defense generates commissions but it allows you to grind the game out. Our best days are typically days when we generate LEAST commissions and hit EVERY shot, not going to happen everyday tho.

 

Thats a pretty high ratio Hitman... but I suppose that ratio is symptomatic of a precision tape reading style (I haven't done the stats in any detail, but I guess that my tape reading trades would have a 1:1 ratio)... overall, however, my ratio is around $2 net for $1 commission (if you exclude the 2 or 3 major home runs I seem to get each year).

 

I am happy to see that we all have something to contribute. Thanks y'all.

I have used the 10 minutes chart patterns, moving average as my guide to exit and it had worked wonders. I haven't really used it at all after I started trading 500 shares because psychologically I don't feel as comfortable letting a position go more than 10 - 15c on me. Hence I usually get out as soon as something goes wrong in my position and it had become a habit to break. As I trade more and more, I find that I am becoming more and more comfortable with the size and I don't feel that way anymore.

I should always keep this discipline when stocks are going against me but I have to adjust my strategy when something is working like amr yesterday.

One of the adjustments is to keep a small amount of shares like Hitman said, it will not only keep my in the stock but it also forces me to pay more attention to it, and when that offer finally got taken out, I will go in for full size again. And since I will be offered a higher size limit come next week, I will definitely capitalize on the idea.

I will also gravitate back to my 10 minute charts and 20 ema to guide my exits. Of course this strategy only works when the stock is trending, and I have to be acutely aware of this.

As far as missing the semi's yesterday. that just goes to show how rookie I really am. Trade what you see and what you think! Who cares if you think that the semi's are up too much, the fact is it is strong all day and even when futures came in they didn't budge, so I should at least have some bids in there to catch some cheap stocks, something that I used to do anyways, and get out as soon as something is not looking right.

I was reading a book this morning about trading, and it talked about having a metaphor for trading is very helpful. I am just wondering if you guys have one and would like to share.

 

The Archipelago Exchange will most likely revolutionize the NYSE over the next year. I wouldn't want to put all my eggs in the "tape reading" basket if I made a living from the markets. Of course with all the money involved I wouldn't doubt this modern technology will be suppressed by the "horse and buggy" lawmakers and regulators. So there's still hope for this ancient art form.

 

CAL $94
9:37, B$30.20
10:21, S$30.41
What a slow mover this stock was, it actually went up to 50c, before going all the way to $30.00, I didn't sell the first time it went there because XAL was really strong there is no reason for the stock to be down or not moving. I sold it after it went to test 50c, again, before coming in, went to $32.50 later in the day !!! HOLD YOUR WINNERS especially when it did not break the fig. the whole day!

LUV $13
9:40, B$18.89
10:19, S$18.94
Some really heavy resistance at $19.00, didn't break it until 2p.m.
Didn't really miss much.

NSM -$11
10:01, B$34.50
10:07, S$34.54
11:03, B$33.90
11:16, S$33.88
Semi's was a trap today, all these stocks opened at the high and came right in, tried to play it a couple of times but this stock is too thick and shake so much, I got out with minimal loss.

VRC $13
10:29, B$14.30
10:33, S$14.35
XNG spiked up, and sold off almost immediately. Put my stop on the bid as I thought the stock is going to come right in as low as 25c. before closing at 75c.


SLB -$47
10:30, B$54.01
10:32, S$53.81
OSX was ripping but futures was coming in. A little print at $54 right after I bought it the stock came in to 75c. Great! Didn't realize this stock followed the future so closely. But I should have held it a little longer, because I know this is a strong stock and when OSX rips like it did, there is nowhere to go but up, but still got shaken out like crazy.

UAL -$6
11:06, B$15.49
11:21, S$15.50
The stock didn't do anything the entire day, kinda weird considering XAL was ripping.

EOG $200
11:09, B$37.26
12:10, S$37.38
12:28, B$37.45
1:19, S$37.52
1:39, B$37.51
3:58, S$37.79
Heavy sellers in the stock today. Trended nicely the first time I got in, I cannot believe I held it for an hour, and when 160000 shares came in at 40c. I put my stop at the bid and got filled. Got in the second time after it broke 50c, but guess what a huge sellers at 60c. Held it for another hour and I got tired watching it and got out. Got in the third time when I saw XNG ticking up and I knew EOG didn't do anything this whole week maybe it will rally to the close, and it did, went as high as 90c, and closing at 79.

PDG $4
11:23, B$11.44
11:31, S$11.47
NIce slow stock to trade but XAU was really choppy today couldn't get anything out of the stock.

SLM -$1057
11:37, B$79.32
12:05, S$77.25
CAN YOU SAY WORST TRADE OF THE DAY!!!?????? Somebody yelled out that SLM has 20k to sell adn suggested that I buy for the bounce. He was showing 20000 to sell at 80c. Come on there got to be a lot more than 20K!! Wake up! the spec. is not going to show real size, I am such a dummy. Printed 30000 at 40c, Offer steps down to 41c, 1000 shares, I thought the seller was done, he showed 20k at 80c didn't he? Another 20k at 25c, offer stepped down to 38c, 200 shares. 38c lifted and 40c still there, went as high as 49c, when 15K offer came in at 50c. I couldn't get out even if I wanted to as there is no bids to hit!! I am screwed!! Another 20K went off at 20c, 5000 at 15c, 6500 bid came in at 25c, I thought I was doing ok. Went as high as 30c then BAMMMMMM 50000 to sell at $79.25. !@#$%%%$##$%^, he printed 50000 at $78.75, 5 minutes later, SELLER DONE RIGHT?????? It squeezed a little to 80c and I should have gotten the !@#$ out when he printed 75c again, as the sellers if there are still out there will sell some mone and this will attract some more sellers!! WHAT WAS I SMOKING? He printed 50c then 49c, should have gotten out!! But I was down $500 at this point, I have never had a $500 loser, how low can it go?? Wrong question, as I found out later more sellers came in, $78 print for 1000 shares, 15000 offer came in at $78, I am stunned. basically your deer in the headlight syndrome!! I kept repeating to myself " I cannot believe this !@#$ " $77.50 printed for 30K, where did the other 15k came from? Another 10000 offer came in at 50c, 20000 print at 25c, then 50000 came in at 26c. I am about to rip my head off .. !@#$. Sold market and got 25c, 20c printed for 100k, then another 100k at $77, I was speechless, the guy who got me in say " Are you getting in?" I feel like saying !@#$ you. I got out 25c form the low and I was down $1000, unbelievable, as the stock close at $80.00, there are guys here who got in at the precise moment I got out and made a lot of money!! AIY. So in the end there was actually 300,000 shares to sell and the spec. showed 20k. at a time.

This got to be psychologically damaging as you may say, how do I continue?? But I did. I stayed calm and look for stocks to buy and waited and waited. 4 more hours to go and I can make some back!! I know it.

STR $13
12:36, B$24.99
3:44, S$25.04
I tried to pick stocks that are still down for the day, in hope that they will rip to the close of we rally later in the day. I was desperate. STR was flat because there was a large seller in the stock, I didn't care it doesn't look like it will go lower so I will buy and hold.

DNA -$37
1:04, B$50.75
1:12, S$50.70
I tried to pick a stock that can go, if we rally, BTK was ticking up and I went long DNA, when a 10000 shares offer at 75 was finally lifted. Almost immediately after that he printed 60c, for 17000 shares. The bastard is long, but since I was already down $1000, being down another $100 really hurt as I am realized how close I am to just give up and buy anything in sight and hold it to the close and get blown out in the mean time, or worse. He actually printed 50000 at 50c, that greedy bastard before going back for good and closed the stock at $53.18..................... DAMMMMMMM, $3 !! It would have been enough to put me in the black........

CRA $238
1:33, B$24.80
2:04, S$25.30
Luckily the spec. is as greedy as they come, BTK was still going up but I didn't want to chase anything, so I put in a bid at $24.85, at that time CRA was trading at $24.95, and looks like it was going to go higher. He spreaded the stock to 80c, and printed 18000 shares with me in it, and he guided the stock higher immediately. I rode it as high as I could before a 11000 offer came in at 35c, I got out immediately. It went as low as 08c, before going $1 higher from where I got out.


SGY $28
2:17, B$37.16
3:44, S$37.27
XNG was going and this stock was flat and wasn't going anywhere, it moved a little and went as high as 40c, but when I tried to get out I got printed 27c. Thin stock what can you do?

ADP $97
2:17, B$58.40 300 shares
2:23 B$58.20 200 shares
3:18, $58.54
I could have made 5 times on this stock, I didn't know how good a scalping stock this was today, it was flat all day and the low was $58.13 adn the high was 55c, it was stuck in the range the whole day, you can literally buy at 20c and sell it at 55c over and over again. By the time I realized this, it was already too late, we are closing and I have to look for some better winners. It closed at 50c.

GAS $43
3:28, B$41.35
3:37, S$41.45
A gift by a greedy spec. The stock was trading at 60c and all of the sudden gapped down to 25c, while XNG was RIPPING. He wants to go long and I want to too. Couldn't get filled till 35c, and when he printed 60c, that was it, as it came in pretty hard pretty fast, still $40 is better than nothing.

What a day I had!!!! At one point I was down $1020, $1057 of which came from one stock!!!! $1000?
Are you kidding me? How can someone as risk averse like me lost so much money on one stock!?
Unbelievable, I am basically stunned!! All my profit gone that I have accumulated in the last 2 weeks evaporated in front of my eyes! Talk about being speechless. I didn't think I have it in me to handle such a loss, but I hung in there and was able to make $600 of that loss back and ended the day down $400!.
I am still speechless.

 

If I had traded it, SLM would have been a short for me... my reasons are at:

www.geocities.com/elitetraderpics
File name: slm.bmp

 

P.S. Within the bitmap image is a full commentary of how I would have assessed the action at various price levels.