Jan 2nd Blood Bath or New Bull?

My triangle is coming to a point on SPY, seeing similar type patterns on DIA and other indexes. Looking historically, we can expect a much higher volume day on January 2nd. Even in bear markets we have seen positive days following a weak Christmas week.

So at the end of the triangle, what is going to happen. 3 possibilities:
1) We shoot up. Corporate earnings are still pretty strong (PE ratios are still pretty low), but anticipated growth is still not that great. This will last till January 29th-30th when the fed meets, doesn't lower rates and we start dropping again. I think this is the least likely of the 3 scenarios.

2) We stay in a tighter range until the next fed meeting, starting in an slow uptrend, and then moving slowly down till the fed meeting with the Fed deciding the next move in the markets. Fed keeps rate steady, and the market drops, SPY falls to something in the mid to low 130 range, and the DOW drops to low 12000 levels.

3) The bottom falls out January 2nd, big drop over the week to the levels described above, and the fed has less impact when they keep rates steady at the end of January (with a continued bearish pattern). Eventual recovery in equities markets in late spring or early fall of 07 (this is just a guess as I haven't studied what happens during election periods).

I like scenario number 2 as the most likely, and scenario 3 being the best for everyone over the long haul. I think the fed needs to keep rates steady (they already have cut everyone a break by lowering), and let the crisis work itself out over the next 6 months instead of artificially keeping this period of pain going. We need to just suck it up and feel the pain for a few seconds, rather than let this drag on for years. I think the markets will land on solid footing if #3 happens.

So given my novice economic analysis, I would equate this to a strategy of buying in the money puts with expiration in March and June. Pulling up the option pricing right now, it's hard for me to tell what the break point is. If the put options or call options are priced right ( I really need to review some of my options books). From what I am looking at though, it looks like I will get the best value for those puts that are way in the money (same goes for those calls that are way in the money). These more expensive options look much more attractive and most likely what I will be purchasing on Monday.

DIA Head and Shoulders

To go along with my bearish post on the SPY triangle pattern from yesterday, DIA looks to be making a head and shoulders pattern.

I have 4 circles on the chart, with the last 2 being peaks that could be "shoulders." There is also a triangle pattern forming similar to the one I saw in SPY, but not quite as well formed.

The volume is mostly supporting this pattern with successive drops in volume on the last 3 peaks. Also of note, on the days after a peak volume tends to be high with quite a large drop (which could just be said as a way of defining a clear peak).

Back from the Islands

Just back from a week in Aruba! It's been a long time since I took an entire week off (I think about 4 years), and I'm amazed at how recharged I feel after not thinking about work (or any of my side projects) for an entire week.

On to the money... I hit one of my target stops on AAPL today. I had thought about upping the target from 199.00 to something higher, but didn't bother with it since I was still in vacation mode. None the less, it ended up being quite a good trade.

I am very bearish on the equities market right now. Here are two charts of the SPY and my the reasoning for my hesitation.

10 Year - Weekly

and 2 Year Daily





Since the peak in the SPY on October 11th, we've hit two lower peaks (highs)which can be seen on both charts Oct 30th, December 11th. From a chartist perspective, not a good thing. On the bright side we haven't testing the November 26th low since the last peak on December 11th. Also on the bright side looking at the long term we still haven't gone much above March 2000 levels for the S&P 500

However, I am holding some credence to all of the doom and gloom in the media over the last 6 months. The housing market is terrible and there is a liquidity problem. In many of the stocks that I follow growth seems to have slowed, and many are projecting weaker growth projections in 08. The weakening US dollar, while making the US more competitive overseas, is also weakening the demand US dollar securities. I don't think we have seen the end of the housing market troubles or the end of the US dollar declines yet. On top of that the US debt is over 9 Trillion dollars, and with all that outstanding debt, then who would want to borrow from the US Treasury, so the Treasury has to raise rates which leads to less economic growth. However this is not what is happening, the Fed has been lowering rates...potentially just stalling an eventual economic collapse or at the very least some very serious inflationary problems.

Okay, so maybe my macro analysis isn't the greatest, but I think there is feeling by investors, traders, and the media that we are already in (or soon to be in) a recession. So with that knowledge in hand, I see two potential patterns developing on the chart.

Looking at the daily chart a triangle pattern is developing over the last month. If this pattern continues, we will hit a price convergence around 148 and then we will breakout to either the positive or negative. My vote would be to the negative down to the 137-138 level.

The other possibility I see through my bearish binoculars is a holding pattern where we bounce between 141-142 level and the 153-154 levels. That is a very large range so we may see something that looks like a downward trend in that range maybe going lower.

The equity markets have been in quite a bit of volatility since this summer, and I see it continuing at least into Feb-Mar of 08. I think my next trade may be to short the SPY around the 151 level (and then again at the 153 level if it gets there), while holding some tight stops in case I'm wrong.

Sick...

I was sick this week, so while I stayed out of the office I got a couple of trading days in. I was mostly trading the SPY on Friday. After some very succesful day trading days, (on some other very choppy days but at a much lower position size), I had quite a bit of trouble on Friday.

The biggest problem: Psychology! After all I read about the mental aspects of trading, I finally got to experience things first hand in a real way. I upped my position sizes this week, and it made a big difference trading in positions 75K in over. After having a great morning, I basically stunk it up in the afternoon, got impatient, made poor desicions, cost myself money. I kept creating stops in my head, and then letting my stops get taken out.... truly terrible!

The biggest problem was not having a game plan in the latter part of the day. I had a game plan when I sat down to trade in the morning, but didn't really have much of one in the second half of the day. I went short and long. My short trade was probably the best of the day. I think I got a little overconfident because my first two trades performed exactly as predicted. I'll chalk it up to a learning experience (it could have been a great day, but I ended up slightly down).

The other really big problem, and I really want to hit myself for this: Base your position sizes on volatility. More volatility = less position size. What this means... look at the previous daily volatility, use that to base position size (AAPL is a whole lot more volatile that SPY).

-----

Now for the other half of my journal, system development. Lately I've admitadly still been slacking off in coding anything. I however can't wait much longer. I have no excuse, as wealth-lab has announced a .Net version to be realeased in the coming months. This means I don't necessarily have to move brokerages (even though that may be the best move in the long run). My plan is to start coding up libraries/strategies entirely my own code in C#. Then when they realease the new version, I'll plug it in and use there order management system.

So again, what is my strategy going to look like. I saw an old post on elitetrader.com that summed up my basic strategy:

identify your trading fractal (time frame).
identify your desirable trading frequency during the ebb and flow of the market during the day.
identify the point of change in this ebb and flow where the old trend is ending and the new trend is beginning.
enter now.
hold in this new trend.
reverse from one trend to the next when that special point of change appears again.

notice in the above prediction is not a prerequisite to success nor is it employed.

notice in the above that you are simply keeping up with what's happening now. sometimes the market is a little tricky and requires you to do a couple reversals in short order...mostly this is not the case. You bank profits between reversals.

I told you what you have to do to make money in the market consistently. You simply need to devise a method for doing so...and it has nothing to do with prediction.

It is anticipating the car in front of you changing lanes even though it didn't use a turn signal...you've seen it happen many times before and you simply 'know' what will happen.

Okay, that is a simple statement, but it describes the basics of any trading system. To summarize again:

Set your position size (based off volatility)
set your entry based off of your criteria (Indicators, your lucky numbers...etc)
set your stop (based off volatility
set your exit criteria (Indicators, lucky numbers, whatever floats your boat)
Repeat

Okay, now I've really just simplified the statement to trading in general. I think it's important to put this down because from a coding standpoint I can write all these things very generic. Set a position size, simple give me volatility, available capital, security in question and current price , and return. Obviously entry and exit are a little more difficult, and could/should change on every bar.

Okay, now I know what to do, and just need to start writing some of the framework so that I can plug it in to any system that has an api for recieving data and placing orders.

A few trades and my own Personal Finance

I placed a few trades going in to this weeks fed meeting. I bought some more DBV in the 401K. It looks to me like a good way to get some diversified currency exposure.

The only trade of note was opening up a position in HPQ. It's been a strong bullish trend here for a little bit. It appears that the trend has slowed down a bit, and I'm seeing some resistance at 53, however it It has been pretty steady through this past volatile week.

My strategy is to hold it for another few days and see what it does, if it closes past 53, than I will keep it till earnings, if it flounders back down I'll be out.

To abruptly change subjects, I am considering selling my condo ( in the midst of these truly terrible market). Although not directly related to my trading, it will have a significant impact on my net worth and my trading capital. While currently, I'm not planning on digging in to my trading capital for my next property, I would be able to afford a bit more if had this ability.

This really comes down to an investment decision, is my money better off in real estate or in the markets? Well obviously it more liquid in the markets, I can sell whatever holdings I have at any point, transfer it to the bank and have cash in minutes.

This is kind of a change in philosophy for me, but owning real estate really doesn't equate to financial security. To be financially secure, you have to enough reserves to pay your mortgage for some amount of time. You must have enough liquid assets to pay for food, and other necessities. I don't think many Americans live in a world where that is possible. I know many of spend irresponsibly too, but that would have to be a topid of another post.

So what is a good reserve amount. That is highly dependent on the person. It is also dependent on your age, family situation, real estate owned, and monthly expenses. I think a good rule of thumb is to have at least 1 years total expenses. I am always conservative in my numbers, so I will aim high for myself: mortgage is 2100 a month plus 250 condo fees, plus roughly 1000 a month in expenses (this number could be cut but for the sake of working through this). This is roughly 40K.

So 40K in reserves, not too bad. 2 years, 80K, 3 years, 120K, 4 years 160K. Right now, I am somewhere above 2 years reserve. If I buy and sell, that will probably drop a little, but not much.

I think to really to be "really" financially secure, you would like to someday own your home outright (yea, I know, Un-American). This would allow for any income made, to go straight to savings and monthly expenses To get there I would need to be in a positive liquid net value situation. Where the amount liquid assets (not houses) are greater than any liabilities (mortgages). I think this is quite possible in ten years in my current line of work.

At any rate, I think it's important to aim high, while living responsibly. So my current goal for the 1 to 3 year goals:
year 1: reserves of 138K
year 2: reserves of 193K
year 3: reserves of 256K
While maintaining a mortgage of less than 380K. That is quite a bit of work, but I think quite possible. This assumes savings of 48K, 55K, and 63K each year for the next 3 years. The assumption should be something more like this: 30K saved (120K total plus roughly 15% earnings = 138K).

Obviously I would like to achieve quite a bit better than that with some systematic trading approach producing gains more like 40%-60%, but this is a more reasonable path to shoot towards.

Brokers & Automated Trading

So as I get closer to building an automated trading system, my choice in brokers leaves me quite a bit to be desired. As I see it there are two ways to go. One is with a traditional broker who provides a simple type API for making trades. The other is a bit more complex using FIX protocol.

There is also a seperate issue of data provider, as some of these brokers don't provide the best of data feeds.

Here are a few of the choices that I have:

1) Interactive Brokers: Pro's - Great fees, wide range of markets, TWS api and FIX available. Cons: I've read lots of negative things about the TWS api. I've read terrible things about there customer service. I've read terrible things about there data feed & trade executions. Also there is a fee per cancelation (could be high for me since I will be canceling orders often enough).

2) MB trading: Very similiar to IB, but not quite as good on market availability and fees. Quite a bit smaller than IB. I have also read about problems with this broker similiar to the same comments I hear about IB.

3) Fidelity: Fees are much higher than IB's, however my accounts are already there. Haven't looked in to this much, but could write some custom code to interface with Wealth-Lab pro to do automated orders from my own proprietary system. Wealth lab has an order execution module built in, presumbaly integrated well with fidelity. Lacks the markets to trade that IB and MB offer. I can say that I am pretty happy at this point in time with Fidelity , the rates are reasonable for a "premium" broker.

4) A few others that are out there: Think or Swim gets good reviews as a broker, API is unavailable at this time. Tradestations... too proprietary, but hear the backtesting software is decent. Lime brokerage: don't know much about them, except they have some relation to the p2p limewire software and a FIX based API. Nice website says they are catering to automated traders.



4)

Mistake still lingering in my head & partial fills

Aug 16 FXI limit buy 100 shares at 111.85 (Lowest low since May this year). Sold at 157.50 on September 18th. This trade is still lingering because FXI is currently trading at around 200 dollars, and the only reason that sell was made because I didn't cancel my upper limit order due to some stresses in my life. Simple error causes me roughly 4K-5K (that's a lot more than my post tax pay check).

To second guess myself a little more, I had been thinking of placing an option spread for FXI (something I don't do often), which would have played out perfectly. A few day ago I got that same idea thinking we are ready for another round of volatility, and then that sell off hits. Ahh... it really sucks to have a day job where you can't trade sometimes.

At any rate, I'm excited because I have two days to trade in November!!! Veterans day and the day after thanksgiving. Both are surely slow days in the market, but it still is good practice. I still continue to have success on these 'days off'.

I ran into a problem with how my trades executed when I traded during the last holiday. I took on a fairly largish position for me over the day in CHL (yes.. more China, but that's the kind of volatility I was looking for). At any rate, I went to sell 400 shares, and only got a partial fill of 145... ugh. The market was dropping and I needed to get out of the positions quick, so I canceled, reset my limit and was out. Saw some small profit slip away over a few minutes as I attempted to execute the order.

So not that big a problem in this scenario, but if this were automated I get in a really ugly spot. I go back and forth on this a lot in my head. When I trade, I typically use limit orders, however there is that danger of getting a partial fill. If I do a market order... I still may get partial orders, but more than likely the whole order will re-execute (at multiple prices). So in my automated system how do I want to handle this.

It's tough. The reason I got out of the position mentioned above was because a significantly dropping market in the last hour. Visually I could see (and I probably could compute the rate of change in the price to measure this phenomena). If do detect it, I have to cancel, wait for a cancel success, then execute the order at another price (if using limits). Awfully damn complicated. With market orders, I think it is a bit simpler (depends on how the broker handles it) however I think slippage could become a major issue in the scalping type algorithms that I am looking at.

So I think ideally what we want to do... when a price target is hit with limit, and there is a partial fill, just execute a market order to get out.

Quick Post

Work's been busy, life's been busier, and my attention to the markets has waned in the last month. Despite my lack of attention I made 2 really great trades and all is going well. Well one of them I got out of way too early (a mistake), but it was still a very profitable trade.

There is an important lesson though here, if I were better prepared with a plan, then that mistake would have never happened. There is definetly something to be said for just doing the same monotonous checks on a daily basis. That's all for now.

Bad Month

I had a horrid month trading. Got caught on the wrong side of two really nasty trades: GSF & FCX. GSF I got a little emotional about when it hit 80 the day after I bought it... only if I had sold there. Watched it sink down in to the 60's. Totally unexplicable.

FCX was pretty much the same in this highly volatile market. I was picking strong trending stocks, and hiting them just a little below there highs. It retracted quite a bit... quite frustrating.

There were a couple good trades in there (AMX being one), but they are never as memorable as the bad ones.

The biggest problem I am having right now, is not the trades I'm making, but the fact that I have no control when the market is this volatile, and I'm sitting at work unable to log on to my brokers web site (rules of the job). It is really quite frustrating. On the flip side, this may force me in to a very rigid system for trading. The missing piece is something reliable enough to trade during the day without my attention. Yea... that's gonna take some time, but I have some good ideas of how to do this. It's just more system program, but at a finer level.

Trading going well

The trading has been going well as of late. I placed quite a few trades in this last dip. I've closed two positive positions, and should have 3 more positive on open Thursday and Friday. I would be quite pleased by a 5 win streak.

I've started looking at the past performance on a specific equity and placing priority on those equities that have performed well in the system in the past. I am hoping to eventually code this logic in to a system. If the equity has done well within the system in the past place a larger trade. If the equity has done poorly, either place no trade, or place a smaller trade.

Ideally what I would like to do with any system is create a series of indicators (past performance within any specific system could be one indicator). And use weights of those indicators to determine whether it should be traded or to determine the position size. I am using a package called RightEdge systems right now, (see http://www.rightedgesystems.com/ ) which has created a .NET platform for trading stocks. Unfortunately I'm not quite sure how to build an order manager using there system yet. They have an even that fires each time there is a new bar with a specific symbol. What I really need (for back testing purposes) is an even that fires on a new bar, and then to go over all symbols building up the indicators list for each symbol. I also need to store and access the past performance metric. I then can evaluate all symbols for that bar for the best trades.

I believe this could actually perform quite well for a large number of equities using a variety of dip buying strategies. But I think it will take some amount of time to implement. I also need to have a multiple exit strategy if I use a number of different system entry techniques. Perhaps store a 'system used' variable, and then based off that, send it to the exit manager.

I am rambling now... but it seems like I have an algorithm I would like to use:
1) evaluate all indicators for all symbols (including back test symbols)
2) pass the information to the order manager to determine if an entry should be made
3) for each new bar, if a position is open pass to exit manager. Based off system variable that is stored with the order determine based off the indicator list and rules whether to exit the position.

Simple... right?

My 2 cents, on everyone else 2 cents

One of the most difficult aspects of being a beginner trader is filtering through all the opinions out there. One of the most annoying parts of this, is that everyone so fundamentally believes they are right, that they have the only legitimate opinion that exists in the entire universe.

This market experts (some who are very successful), will make statements such as 'Using volume indicators along with a trend following indicators, is the only way to consistently make money trading.' 'Technical analysis has been proven unsuccessful over the last 50 years, fundamental analysis is proven to be far superior in the long run.'

This may be a little bit of an exaggeration (but not much). These experts talk as if they are the only ones who have the answers to how the markets work. When the truth is, there are successful fundamental traders, technical trend followers, swing traders, day traders... I'm sure there is even a few traders that trade on gut feeling and are quite successful.

So this is the big thing that has taken me almost a year to get over. Some of these experts do have very valid and useful opinions. How do you filter the information to something you can use in your own trading. The important point being here, is that every trader is different. Your emotional makeup, skills that you have, and a variety of other traits have a large impact on how you trade (and how you should listen to different experts, and even technical indicators that you use).

One person may use the same experts opinion to go short on a stock (for a short-term hold), while another goes long (for a long term hold). Each may end up having a successful trade by there own measure. This easily works the same way for technical indicators.

If this sounds familiar, the ideas are not original. I read the Van Tharp book a few months back, but the point didn't really hit home until the last few weeks of trading. It really is important to know yourself, and know your goals. When you do that, it will make it a lot easier to filter through the enormous amount of information that is out there.

I think it's fair to say that I am still in that discovery process, but I believe I am moving a lot faster through the discovery process as I actually trade the market and backtest a variety of systems.

One other note, I am getting awfully curious about futures now. I have a good understanding of equities now. I have a little understanding of options, but so far, I am not too impressed with any of the option trading strategies I've seen. I really like the idea of trading futures, however I can't say I know much about the futures market, except there is large risk (lots of levarage used).

I'm considering opening a second brokerage account with Interactive Brokers to trade futures, while continuing to take trade equities at Fidelity (cause I really do like the wealth-lab product... which only available in the US through fidelity). The only problem, is it costs a fee if you don't trade in the account, and I just need to start following a few of the futures markets before I ever place a trade. I need data on prices and contracts, and ideally would like to backtest some futures strategies before jumping in.

Beat up

I've been trading a swing system that I developed, with very little success over the last month. They system has low draw downs and very good returns, however I am skeptical of how I am trading it over the last couple weeks.

So I suspect the problems to be among the following:
1) I am picking the stocks that I trade based on a list of alerts. I pick the stocks that have had the best performance in the system. This may not be leaving me with as many opportunities (that produce the excellent returns). I also limit the stock universe to those stocks that are trending up and just a little down for the week.

2) With the more volatile markets in equities over the last couple weeks, I've been stopped out early of a couple trades that did eventually turn well.

3) In a bullish market, the only oversolds after a good day (one of my indicators) are not the best stocks, so I when I submit limit orders, I don't get the best stocks and industries.

4) I some how missed the bottom of the market. I knew we were headed for another down day, but that didn't mean I shouldn't be in buy mode. I got stopped out of several orders, but I could have been in to several more and actually profited, if I hadn't been as passive during the down periods.

5) Lastly, and I'm still guilty of this, I can't hold stocks past the period that I've specified by the system, or when the indicators say sell. This has less to larger losses than I should have taken. I've reset these trades too many times.

On the bright side, I am currently in PRU and DIA, and both are close to there sell points. Other trades are doing well outside of this system (wish I had made a larger position in AMX which is up 20% in the last 3 months). I'm gonna stick with the system a little time more and see how it goes. I have lots of trading ideas but I haven't had time lately to code them up. I'd like to try some strategies that go long and short at the same time, and see how that does.

It's disappointing not having profited more from the bull market, but I'm still in that learning phase, and I have really limited my risk, so my +/- is still very reasonable. Hopefully if the market continues to be choppy I can profit on the next coming swing. I see the dow, spy and qqq continuing making highs, but in the same choppy fashion that we've seen in the last week. That's my intuition at least....

Energy stocks and more system thoughts

So a few more trades this past week, I'll point on the bad: CEG.
I was really anxious to get in to this stock, it hit my target which was well below the previous close, and then sunk to my stop-loss. On the bright side, risk was limited, but I feel like I could have done some better research and known that this stock was gonna dive like it did (still not quite sure why). It's actually around another good buy point, but I am reluctant to get back in, even though my gut says buy. I'll watch it and see what happens.

I ended up getting in another utility, CNP, hopefully that will go a little better, and I'm out of SRE which hit it's price target the previous week. I am wondering if I need to check the correlation between stocks and make sure that I am not over investing in a specific market.

My system testing has going fairly well. I have developed systems that return 50-60% paper profits. I am running in to a bit of a problem in keeping track of my changes and then the results of those changes. I really need to keep a spreadsheet of these backtests and the changes made.

I implemented the move the stop up to buy price which didn't seem to have too much an effect on the overall system (about a 1% change in Annual return over 10yr). I have a ton of ideas I'd like to test in addition to this. I'd like to test a multiple entry and exit system. Take some of the best systems out there and combine them to work in sync. After that I'd like to work with specific stock lists for different systems placing trade priority based on strength of signal or other confirming signals. I really need to spend some time on position sizing. Right now I am using a very small volatility adjusted algorithm (basically a simple subtraction off the base amount based off volatility).

One last thought, from something I read this week. I really need separate systems for bull markets, for bear markets and sideways markets. This is gonna take some time, as right now my system is mostly for sideways markets, but it also works well with bulls. I need more specific systems for a market like this, where I can follow a strong trend for a shorter period.

EWP good... NYX kicked my butt

So two trades closed this week. EWP (Spain ETF). Bought a good low, sold at my target of 59.12. NYX on the hand hits it stop loss at 79.70. This drove me nuts as it seems to have bounced off this level. I should have gotten out earlier, but even when Euronext reported good numbers, it still spiked down. According to Cramer, he said there was a big seller dumping it. There isn't much I can do to avoid this. I should have stayed with my original time sell, and not let this ride. If I had done this, I could have renentered at around 80, and be at a better spot right now.

So as far as system to development, I've been playing with coding up a longer hold period for strong trends. The algorithm went like this (kind of like a chandelier exit) :
a) When I hit target one (say at 2x ATR), move stop loss up to buy price
b) Move target up
c) repeat

So this brought down total returns in backtesting, however there were some real good long term trades. I'm really trying to focus on different exit strategies now. I think if I combine this strategy with a few more indicators for exit I might be able to squeeze some more points out of the system.

X, hilo, and NYX

Okay, so here is a better trade that I made this past week:

Stock X:
Buy: 5/1/2007 99.88
Sold: 5/8/2007 108.00

I have been playing with wealth lab quite a bit, and I have modified one of the hilo scripts which got me the entry in to this trade.

X hit the lo on the hilo at 99.88, with oversold indicators (ADX And Stoch). I set the target at around 107.50, I ended up selling at 108 because it opened up higher. A nice 8% profit.

It closed at 113 today, so I'm not quite sure how to feel about this. This trade was all automated with limit orders, and I hit my profit target(3xATR), so I am happy about that. On the other hand I'm torn. I've toyed with using chandelier exits that move in the direction of the trend, but in my initial testing I haven't seen good results. Maybe if I hit the target, and then set a chandelier exit. Or maybe sell half the position at 1st target and then implement a chandelier exit.

There are so many variables in the system I am trading that I can attempt to tweak in WL and see how it performs over time. Right now I am fairly happy with this system for now, until I learn a bit more. In all the tests I've run it produces 30-40% returns backtested...

On another note, I have an open position in NYX (bought at 84.29). It's been fairly volatile of late, but looks to have a lot of support in the high 81's. Many are speculating it to go up quite a bit when they release the Euronext numbers next week. Of course there also lots of shorts bashing the stock too. My gut it telling me to widden my stop and target a bit in anticipation of next week. Maybe I should attempt an exit strategy like described above. We'll see...

Misreable first trade

Date: 4/9/07
Symbol: DD
Entry: 49.84 (Stop Loss 48.19, Target 51.50)
Exit 48.78
Grade: F!

Okay, so this was my first trade, and everything that could go wrong went wrong:
1) I wanted to buy at around 48.75, however the market gapped up monday morning on rumors of a DOW buyout. I bought anyways, thinking this was the move that I was about to see. Bad move...

2) Big big mistake, was damn fidelity set ATP to use margin on all my new buys after I setup margin. So accidently I bought this using margin. That won't happen again, it was a simple change in the software to make CASH the default.

3) Entry was made because of MACD price divergence, buying value below 20 day EMA. DD had been in a rather tight MA channel (probably too tight).

End result: I sell out early to get it off margin, after it didn't move the direction I wanted. It did hit a high a few days later of 51.41, which would have just missed my target, and now it has swung back to the down side.

To Trade or Invest

Wow, I just read the last post I did back in January. Shortly after that post, I realized truly how little I knew just a few short months ago. I've hit the books quite hard in the last few months and have come a long way, but I still have a long way to go.

I am starting to formulate a strategy. I am definetly a trader and not an investor. I am confident I have the discipline and technical skills to trade. I much prefer the idea of being in and out of stocks on a more regular basis rather than looking to hold securities long-term. I may just be thinking this now because I just finished an excellent book by Alexander Elder on trading... I may turn out to be a horrible trader, but I'm willing to take that risk now and find out.

By no means am I planning on becoming a day trader. I am looking at the daily (and weekly) charts for trends for good entry and exit points. I haven't actually placed my first trade yet (as a trader as opposed to an investor), but hopefully I will come back to the blog to share my success (and not my failure).

Since I have discovered MACD, I've been slowly adding to my arsenal of technical indicators. I have picked some indicators that work for me, and I'm ready to use those to look for trends and buy and sell signals. I am not abandoning fundamental analysis by any means. I am a strong believer that there is a place for technical analysis and fundamentals for all investors and traders.

Most importantly, I'm ready to get disciplined. Tracking my trades, and using the 2% and 6% rules Elder outlines to manage my money. So here I go, Hopefully I will be publishing some trades in the near future.

FXI, can China go any higher?

FXI, iShares FTSE/Xinhua China 25 Index , bought at 94.67 early decemeber 06 saw it up to a high at 118.04 on Jan-03-2007, and watched it drop around 10% down to 105.95 over the next two days. This drop was apparently from anouncement by China's Central Bank to implement policies to slow economic growth (this isn't the first time they have done this).

I attempting to figure out a strategy for this ETF over the next week. I originally purchased this stock because I wanted exposure to the Chinese market. I have ever reason to believe that GDP growth in China will outpace the US over the next 5 years (but will not grow as fast at his been). The huge chinese ecomony has had exceptional growth in the last 5 years, and will most likely continue to grow over the next several years, just maybe not at the break-neck pace it has been going at.

I think there is a possibility that China will suffer a correction sometime in the nearish future. The severity of this correction will be based on how well China can control there growth. If they implement policies to slow growth, yet the larger Chinese companies earning continue up, then things should be fine. If the economic policies cause the companies to not meet expectations, China could land hard ( however this would be a big problem for the rest of the world).

So what does this all mean. I'm not quite as bullish on FXI as I was, but still believe there is plenty of oppurtunity there. If FXI continues down this week, this may be the correction, and it may be time to dump some taking profits, and wait for it to start heading back up again and purchase more on the way back up (i've seen reports of corrections from 10-50%).

(As of this write time , Taiwan and Singapore are down so chances are China will be down again, and I may be looking at a sell).