Losses and rejection motivate me to succeed!

This week, my trading performance suffered for four(4) main reasons:

i) I set my stops too tight (twice!),
ii) I wasn’t patient enough selecting my entries,
iii) I listened to a 3rd-party’s opinion instead of just trading my plan, and
iv) I traded when, really, I should have sat on my hands during this choppy trading week

Fear & emotions play a big role when losses are mounting.  Yesterday, I manually exited a trade for a small $46 loss.  Experience told me that the trade wasn’t going to work.  By the letter of the law, I should have waited for my stop to take me out (for a larger loss).  That trade ended up moving against me so, from a dollar preservation perspective, I did well.

Twice this week, I’ve set my stop too tight (out of fear for taking too large of a loss).  Today, I got taken-out of my trade for a $424 loss.  Had I not let fear dictate my stop level, that trade would have (instead) gone on to net me a $75 profit.  Stops, I do need to work on.

My patience has certainly improved significantly since I first began this journey, but it still comes back to haunt me from time-to-time.  Trade timing & execution is everything.  Everything!

I’ve already fixed #3.  (I don’t ever intend on repeating that mistake again.)

When you start the trading week with $2,542, and end the trading week with $1,880, it’s easy to see why patience equates to success in trading.  Taken to the extreme, had I not placed any trades this week, I’d be $662 further ahead.  i.e. still sitting with a $2,542 balance.

On a positive note, at $1,880, I am still $260 above where I was 2 weeks ago, and just $106 (5%) below my revised goal/target for this week.

Next week, my goal is to make $202, putting my end-of-week balance at $2,081.  It’s a shortened trading week with Monday being U.S. Memorial Day.  Patiently waiting for my trade to come to me will be paramount to achieving my $202 profit goal for the week.

In other news, my boss rejected my request to work from home 2 days per week.  Here is his response:

“While I wasn’t surprised that to hear that you have an issue with driving almost 62KM to and from work, I was a little taken aback that you’d look to me to resolve the issue…
Your group is very important to our business and as such we need someone leading it, here, every day.  It would be impossible for you to work from home. The way we are structured to communicate and manage our business depends on close proximity to the point where really the only role that could potentially work from home may be Sales… and they don’t.  The overhead to communicate, control and utilize home-workers would be more than we could afford or find value in.
I won’t make special arrangements for one employee.”

While I am by no means surprised that he rejected my request, I would like to comment on a few of his points here (in the safety of my blog ) …

First, there is always give-and-take between employer and employee.  It happens every day, and it usually consists of employee’s giving to their employer in the form of time-worked (and away from friends or family), physical or emotional sacrifice.  The fact that my boss is “taken aback” that I’d approach him about improving my employment satisfaction just speaks to how unapproachable he is to discuss such matters.  (I’m probably the first person to have the guts to ask!)  Hidden in the subtext of the first paragraph is his expectation that I uproot my family and move closer to work.  It’s laughable, really.  Who does that?  My family has roots in our community going back over 16 years.

Second, the fact that Sales isn’t allowed to work from home only conveys just how irrational he is on this topic.  The “overhead” he speaks of consists of a laptop, VPN access, and a cell phone, all of which everyone in Sales already has.  Oh yeah… and I have those too.  The last time I worked from home due to a city-wide crippling snow storm, I proved that a home office can and does work.

Having said all of this (here), I won’t be responding to, or speaking of this with my boss any further.  I think it’s pretty clear where he stands on the subject.  In 312 days, it won’t matter anyways .

2 steps forward, 2 steps back, 2 steps forward

In early April, I transferred $2,500 to my trading account and began growing it.  Well… “shrinking it”, actually.  My first few live trades saw me see-saw between profits and losses.  And then a couple of poorly executed trades left me with a balance of $1,324 (i.e. -47%).  I then stopped trading live dollars and took some time to re-group, reflect, analyze, and trade virtually again.  In hindsight, it was one of the best decisions that I’ve ever made…

I determined that one (but not all) of the factors contributing to losing nearly half of my trading capital, was how fast what I was trading moved.  It’s a double-edged sword – moving quickly in your favour can be good but you’d better be prepared for it to move quickly against you as well.

Knowing that the S&P500 moved much slower (relatively speaking), and having learned so much more about trading since my Trial Run almost a year ago, I did some investigation.   It turns out that SPY (an ETF that tracks the movements of the S&P500) has a great menu of Options to trade against it, and it’s incredibly liquid with tight spreads (meaning there’s always someone willing to buy or sell, and the price difference between buy and sell is a penny or two).

So from about mid-April until May 6th, I traded SPY Options using virtual dollars.   I set my virtual account to $1,324 to see if I could successfully build my account back up to $2,500.  It took about 3 weeks, through some up’s and down’s, but I did it.

On May 9th, I started over again with what was left of my live/real trading capital ; $1,324.  Five days in, and five trades later (all profitable), I had grown my account to $1,620.  This week (beginning May 16th), I placed four trades and all four were profitable.  (That’s a total of 9 trades over the course of 2 weeks, all profitable!)  I locked-in a total of $922 in profit this week, growing my account from $1,620 to $2,542!

Moving forward, I will continue to focus on trading SPY Options, and will slowly add PitTrades tickers back into my trading menu.  I won’t update the projections for my trading balance just yet – it’s still too early to tell what my success rate and average profit will be.  But the past 2 weeks of very successful live trading, plus the 3 weeks of good virtual trading prior to that definitely have me pumped!  As always, I’ll keep you posted on my day-to-day trades via Twitter.

Meanwhile, my commute to/from work has been hellish.  (That won’t come as a surprise to anyone that follows me on Twitter.)  So much so that I took the bold step of requesting to work from home 2 days/week.  No response from my boss yet, but honestly I doubt very much if he’ll entertain the idea.  He firmly believes in office face-time, and that working from home equates to not working.  Given that my plan is to trade while I work from home (just as I do now from work), I can’t really argue with the latter.  If he agrees to it, then my day-to-day life will improve but it’ll be ugly when I resign.  If he rejects the concept, then he shouldn’t’ be surprised when I resign.

P.S.  T-minus 316 days until I’m a career Trader!

Approval, Execution, and Living a “Double Life”

On Monday, March 7th, my trading class instructor at PitTrades gave me her blessing to “go live”!  This means that I am allowed to trade real money using the trading approach taught in the class.  (Each student agrees, up front, to trade virtually until approval is given to “go live”.  This lets you make every possible mistake while you learn, without blowing-up your trading account.)  

My original timeline had me trading real money in March but “late March, early April” is more likely now.  The plan is to grow a modest $2,500 trading account into $15,000 within 12 months.  The $15,000 will become my trading capital (the money that I will use to generate income as a career Trader).  This approach will also allow me to further develop my trading skills for 12 months.  If I’m unable to achieve my $15,000 goal, then I’m not ready to switch careers.  Everything hinges on my ability to execute.  And why not?  That will certainly be the case once I’m responsible for supporting my family through the income that I generate as a Trader!
 
Speaking of my ability to execute…  every aspect of my trading has been steadily improving: timing (selecting appropriate trade entry and exit points), trade & money management, patience, managing my emotions, plus I’ve started to identify the types of trades that I prefer to execute.  This has drastically improved my win/loss ratio which, in turn, has had a very positive effect on my confidence and excitement for the future.  I am beginning to see just how far I have come since November 2010, and I’m starting to believe that I can do this.  So much so that I feel like telling everyone I know (including work colleagues) what I’m up to!  (But of course I won’t/can’t.)  The support system around me has been awesome; my Trading Mentor has been keeping me focused on what’s important, and my wife and kids have been great about giving me time alone to attend class lectures, prepare for the trading week, etc.
 
I finished preparing my 2010 taxes last weekend.  You’ll recall this was the year to start unwinding a “tax snafu” that I’d gotten myself into for the best possible position going into next year.  I had to strike a delicate balance between “pain now vs. pain later”, and I’m pleased (but not overjoyed) with the results.  The reality is that the numbers are what they are; I can’t change them.  I can only do whatever is allowable within the Canadian Tax Act, and nothing more.  
 
Let’s not forget that I’ve been living a “double life” for quite some time now.  For the past 5 months, I’ve been squeezing in hours of live trading while at work, and spending my evenings reflecting upon my results, and learning, learning, learning.  Simultaneously, work has been excessively busy and stressful since signing an “industry, game-changing” client, and I’m heading-up the PCI Compliance initiative ( https://www.pcisecuritystandards.org/ ).  There’s also just “regular” day-to-day technical operations for which I am responsible.  Add to that a horrendous daily commute to/from work since eliminating my use of the fast-moving (and expensive) toll highway.  My youngest daughter and my wife have had some medical issues to deal with lately too.  But I digress…  I am keeping my eye on the light at the end of the tunnel…  Career Trading Bliss!!!  Just the no-commuting aspect alone will give me back 3 hours of my life every day, and cut my car maintenance and fuel costs to near $0.

Coming up over the next couple of months:

1. File my 2010 taxes
2. Generate mock 2011 tax returns using a range of assumptions.  This will give me more accurate information on my tax obligations once I start trading for a living.  (When you are self-employed, it is up to you to set aside the money you owe in taxes and to pay it to the Government in quarterly installments.)  This information will feed my Business Plan.
3. Update my Business Plan – things like trading income projections, taxes, expenses, cash flow analysis, etc.

Here is an updated timeline of activities:

COMPLETE	Plan and correct “tax snaffue” for best possible position come Jan – Mar 2012
~ Apr 2011	Begin trading real dollars; $2,500 initial account size
Apr – May 2011	Generate mock 2011 tax returns using a range of assumptions, update Business Plan
Jun 2011	Trading capital should be ~ $3,300
Jul – Aug 2011	Review progress, revise plan (if necessary), update Business Plan
Sept 2011	Trading capital should be ~ $5,400
Dec 2011	Trading capital should be ~ $9,500
Jan – Mar 2012	Prepare 2011 taxes, finalize Business Plan, purchase Trading Equipment, etc.
Mar 2012	Trading capital should be ~ $15,000
Mar 2012	Resign from I.T. job
Apr 2012	Trade full-time!

P.S.  T-minus 382 days until I’m a career Trader!

The Rhi-Post

A friend of mine, Rhian, approached me about contributing to a new online collection of editorials called The Rhi-Post.  I am proud to have been published in the inaugural edition .

If you have a question that you’d like for me to answer in a future edition of The Rhi-Post, please send an e-mail to therhipost@gmail.com.

http://rhipost.wordpress.com/

Preparing to trade with real money

My trading education has been progressing nicely over the past 48 days.  I’ve made some “real doozy” money management and trading errors that have helped to define my personal Trading Rules.  Likewise, I’ve executed some picture perfect profitable trades, and managed some losing trades into profitable ones.  I continue to attend the weekly PitTrades course lectures, and a special group has been established (of which I am a member) for those looking to “go pro”.

I’ve also spent about 3 full working days preparing our 2010 personal & business tax returns.  The underlying goal here was to unwind an undesirable tax “gotcha” to better position our taxes owing this time next year (about a month before I switch careers to Professional Trader).  In the end, I was able to reduce next years’ tax liability by approximately 40%.  I was hoping for a figure closer to 70%, so clearly I’m not positioned as well as I’d like to be.  This puts additional pressure on me to build my trading account beyond the $15,000 target I set for myself.  In order to figure out how much extra money I’ll need, I will run a variety of tax scenarios once this years’ tax season is put to rest.

Speaking of my trading account… I’m still on-track to begin trading live dollars – and start building my trading account – sometime in March.  Doing so before I’m ready would only set me back mentally and financially.  The markets have been difficult to trade lately – and that’s good – because it has fast-tracked the timeline to experiencing various market conditions.  The more mistakes that I make – and learn from – before trading real money, the more successful I’ll be at growing my trading account.

My Trading Mentor has been there for me every day, keeping me on-track towards my goal.  We’ll often chat multiple times throughout the trading day.  For anyone looking to trade for a living, I highly recommend finding an experienced, successful Trader willing to mentor you.  Be open and honest with them about your trades – what, when, and why.  If you’re having difficultly sharing your every move with your mentor then either you’re incompatible, or you’re setting yourself up to fail.  I hope I can pay-it-forward someday like my mentor has with/for me.  Thank-you : you know who you are.

T-minus 403 days until I’m a Professional Trader!

8 Ways To Great

The author of one of my favourite books on Trader Psychology, 8 Ways to Great {Peak Performance on the Job and in Your Life}, gives a video summary of highlights:

http://www.drdoug.com/blog/2011/02/10/8-ways-to-great-highlights/

T-minus 451 days and counting…

The last 7 weeks have been an absolute whirlwind!  I completed the construction of my wife’s Nia Studio, launched its website, and opened the studio doors for students.  My vacation time over the holidays wasn’t relaxing whatsoever after my wife had a break-down brought on by exhaustion, and exacerbated by her MS.  She still hasn’t recovered.   Christmas and New Year’s came and went, planned and executed primarily by me.  All the while, I was squeezing in time whenever I could with my PitTrades Options Trading Course…

Even with all of the adversity that life has been throwing my way lately, my training has been going exceedingly well.  I’ve covered almost all of the material, attended weekly lectures & live trading sessions, and practiced, practiced, practiced!  I even had a 30-minute private call with my Instructor (Leigh) last night.  The next step in my training is to pick a date, and trade the market in real-time with fake dollars as though I was out on my own, trading real dollars.  My results, the decisions I made, my timing, etc. will all be scrutinized by Leigh.  Then repeat.  And maybe repeat again.  Assuming everything goes well by then, Leigh will give her blessing for me to trade with real dollars.

The truth is that I’ve already made this mental leap.  Every trading decision that I’ve made on the virtual platform (real-time market trading, using fake dollars) has been as though I was doing it “for real”.  And, whenever a trade didn’t work out in my favour, I’ve scrutinized it and incorporated what I learned into every subsequent trade.  I attribute my rapid learning curve primarily to my past trading experience, and my desire and determination to become a career Trader.

With my education firmly under way, it was time to shift gears and determine when I could quit my I.T. job and become a full-time Trader.  “T-minus 451 days and counting…”  <— How’s that for a definitive timeline?    Here are some of the tasks and milestones along the way: 

Jan – Mar 2011	Plan and correct “tax snaffue” for best possible position come Jan – Mar 2012
Mar 2011	Begin trading real dollars; $2,000 to $2,500 initial account size
Apr 2011	Review tax season actual results, revise plan (if necessary), revisit Business Plan
Jun 2011	Trading capital should be ~ $3,370
Jul – Aug 2011	Review progress, revise plan (if necessary), update Business Plan
Sept 2011	Trading capital should be ~ $5,700
Dec 2011	Trading capital should be ~ $9,630
Jan – Mar 2012	Prepare 2011 taxes, finalize Business Plan, purchase Trading Equipment, etc.
Feb 2012	Resign from I.T. job
Mar 2012	Trading capital should be ~ $15,000
Apr 2012	Trade full-time!

Essentially, my plan involves doing the following by April 2, 2012: i) improve my tax situation so that I’m under less/no obligation to contribute to my RRSP’s next year , ii) turn ~$2,000 into $15,000 (which will become my trading capital – i.e. what I’ll use to generate income as a Trader), and iii) maximize my cash-on-hand to provide some additional cushion. 

I’ll turn ~ $2,000 into $15,000 by trading an hour or so from work, 2 to 3 times per week, using what I’ve learned at PitTrades.  The figures are conservative and any money in excess of $15,000 will become my cash cushion and/or help to improve my tax situation.  An added benefit to this approach is that I have 12 months to perfect my Trading Plan, and gain the confidence that I need to quit my I.T. job.

Now off I go now to attend one of my weekly PitTrade lectures…

P.S.  In our annual Christmas Letter to friends and family, I let the proverbial “cat out of the bag” about my plans to become a career Trader.  Eeeeeeeeee!

A Month of Progress

Over the course of the past month, a lot has transpired personally & professionally. Here’s a brief update on the professional side of things…

Through the awesome network that is Twitter, I met a Professional “prop” Trader. She offered to mentor me – free of charge – just like someone did for her earlier in her career. Since meeting her in late October, I’ve made only 1 round-trip trade (significantly less trades than I otherwise would have), and locked-in a +2.6% profit. I just entered my second trade yesterday (details at the end). It’s been great to bounce trading and market ideas off of her, understand her thought process, and learn about her style and the types of vehicles she trades. Having a friend I can talk to about this stuff is nice too; not only does no one else I know understand trading, I’m also keeping things “hush hush” until I know I can do it. Last night, she shared a tidbit of knowledge with me that blew my socks off. I’m certain there’s more where that came from. She also helped me find a suitable training course to launch my professional trading career…

I’ve signed-up with www.pittrades.com for their 1-year Options Trading Course. The course is ~$2,000, payable in quarterly instalments, with no commitment beyond each quarterly payment. Their trading strategy requires minimal start-up capital (money) to generate daily income and you can build-up your capital (money) while you learn. A high percentage of their students have full-time jobs (like me).

My first class was this past Tuesday night. I’m glad that I taught myself about Options a few years’ back or else I’d probably be lost already. The amount of course content, especially videos is nothing short of astonishing. I won’t lie to you – it’s going to be difficult to stay on top of it all. I attended my first live Trading Pit session Thursday morning between 9:15am and 10:00am. There is quite a large community of like-minded, professional traders at PitTrades, forums, live chat, and everyone seems ready and willing to help you succeed. The end goal for this community is to “trade the hell out of the markets together”. I’m in!

To facilitate my training, I bought a relatively inexpensive 13.3” Acer 3810T laptop, and a cell-network Internet stick. These will allow me to attend live Trading Pit sessions while at work, and trade without connecting through any work/corporate systems. There’s still the matter of having a second laptop on my desk though… so I need to be covert . I’m still not 100% certain I’ll be able to execute all of the practice trades that I’m expected to do, but I’m absolutely going to try!

As I mentioned earlier, I entered my second swing trade yesterday since meeting my trading mentor. A couple of days ago, the S&P500 3-EMA and 10-EMA (on the daily chart) moved/crossed into a bearish alignment. This is my trade signal; simple but historically proven to work. Since they crossed, the S&P500 has started carving-out a new downtrend channel. Today’s bullish rally took us right up to the top line of this new downtrend channel. So I stepped right in front of a bullish moving train and shorted it at 1,199.25, just 1 point below the intra-day high of 1,120.29. I was surprisingly calm about it; in hindsight, it was a purely technical, emotionless trade. Awesome. I knew full well that this entry point was as low-risk as they get, even though the run-up to these levels was full of bullish price action. I think it’s helped a lot that I’ve been staying away from cnbc.com and other news & opinion sources.

After I shorted the S&P500 at 1,199.25, we tagged near 1,120 again about an hour later, and then drifted lower, and lower still into the close. The S&P500 closed the day at 1,196.69.

Performance of my current trade: +0.36%

Performance since meeting my Trading Mentor on October 23, 2010 (24 days):

S&P500: +1.03%

Me: +2.97% (1 winning trade, 0 losing trades, and 1 trade in-progress (currently a winner))

Short at 1,175.50

Friday’s gap open and violent sell-off immediately thereafter was enough to convince me that we are putting in a top here.  In addition to the usual divergences (higher market levels, lower technical readings), the “S&P 500 Percent of Stocks Above 50 Day Moving Average” recently archived a level of 93%.  The last time we achieved such an extended reading was back in April 2010, after which we lost 100 points in the S&P500 in a few weeks time.  Even if we aren’t headed for the major correction that the bears are calling for, it stands to reason that the market should “take a breather” after reaching such extended levels. 

Even though the Nasdaq rallied strongly on Friday, it printed a “topping” candlestick and did so outside of its’ Bollinger Band (another supporting factor for a reversal here).  The advancer/decliner ratio in the Nasdaq was also weak putting the move into question.

Simultaneously, Financial stocks declined with force, and confirmed a bearish candlestick reversal pattern.  I’ve said a number of times here that, if the Financial stocks don’t participate in the rally, the rally won’t be sustained.

Volume on the NYSE and S&P500 has picked up over the last 3 days and Friday’s volume was the highest (which is indicative of a market top/bottom).

With all of the above at play, plus the key Fib level having been tagged and rejected 2 days ago (see http://bitheadturneddaytrader.wordpress.com/2010/10/14/target-reached/), I established a short position in the S&P500 at 1,175.50.

Performance of my current trade: -0.49%

Performance since July 27, 2010 (82 days):

S&P500: +5.60%

Me: -6.25% (5 winning trades, 8 losing trades)

Target reached

Yesterday, markets were on fire with optimism… at the expense of the U.S. dollar and bonds. Or maybe it was the exodus from “safe” assets like the U.S. dollar and bonds that fueled the market optimism? No matter what the cause or rationale, markets rallied right into and through the key resistance zone I mentioned in my previous post (http://bitheadturneddaytrader.wordpress.com/2010/10/12/uptrend-remains-intact/).

And, as I promised I’d do, I took profits as we approached 1,181. I sold half of my long position at 1,180.25. When prices spiked slightly above 1,184 and began to back-off, I sold my remaining half long position at 1,183.00. I’m now sitting in cash.

So now I wait to see where markets want to go from here. With the U.S. dollar so weak, it wouldn’t be surprising to see the markets continue to march higher. But we’ll need Financial stocks to participate in order for that to happen, and even yesterday’s rally wasn’t enough to inspire XLF to break-out above $15 (a key level many traders are watching). In fact, even as the S&P500 closed +0.7% yesterday, XLF closed ~ even after flirting with $15. Not very inspiring.

Today, the U.S. dollar has continued its’ decline (quite steeply actually) but the S&P500 sits ~ even with yesterday’s close. Financial stocks are taking a beating, presently down 1.2%. Technology stocks are slightly positive. There are other indicators like the VIX, the put/call ratio, and various divergences in technical indicators that say we’re primed for a reversal here. I need a bearish alignment of the S&P500’s 3 day and 10 day exponential moving averages to trigger a short trade.

Performance of my current trade (now sold): +3.47%

Performance since July 27, 2010 (79 days):

S&P500: +5.77%

Me: -5.78% (5 winning trades, 7 losing trades)

Uptrend remains intact

The uptrend remained very much intact today after prices stayed within the long-term up-trend line established back at the start of September. When the trend line at 1,156 held, the S&P500 rallied to near break-even on the day (~1,165) and stayed there until the Fed released its’ FOMC Meeting Minutes at 2pm. 1,165 was immediately taken-out by a strong push higher to 1,170. Sellers then pushed prices back down to 1,165. When 1,165 held, the S&P500 rallied right back to 1,170 again. We tagged 1,172.50 and closed the day just a fraction of a point below 1,170.

The leaders of today’s rally were undoubtedly Financial stocks which were up more than 1%. XLF looks poised to push above $15 and, when it does, the whole market will follow it higher. Technology stocks also did well today (+0.65%) but, with Intel scheduled to report its’ quarterly earnings after the close of trading, I think Tech held back a bit. The heavily traded QQQQ broke above $50 today which is a key psychological level.

After failing to take-out its’ 50 period moving average (60 minute chart), the U.S. dollar headed lower. Yesterday, the VIX fell out of its’ long term falling wedge pattern. Today, the VIX back-tested the wedge trend line and then reversed course and fell even further. Bond prices got hammered today too. All of this action supports higher stock prices.

As mentioned previously (http://bitheadturneddaytrader.wordpress.com/2010/10/08/im-back-baby/), there’s a resistance zone between ~ 1,171 and 1,181 so the next few days will likely bring some choppy and/or violent price action. I’ll be locking-in profits as we approach 1,181 and will certainly exit my position if we’re unable to remain above 1,165.

Performance of my current trade: +1.62%

Performance since July 27, 2010 (78 days):

S&P500: +5.02%

Me: -7.46% (5 winning trades, 7 losing trades)

 

I’m back, baby!

I spent very little time reading the business news headlines this week. I think that’s why I was able to gather up enough courage to go LONG this market after the U.S. labour statistics showed that 95,000 jobs were lost last month. It makes no logical sense for the markets to rally on such news… but it did. The reality is that this bad employment news could be what the U.S. Federal Reserve needs in order to justify “QE2” (quantitative easing, take 2). In other words, print even more money and pour it into the U.S economy. It’s the market’s ability to “climb the wall of worry” that causes so many “market top callers” to lose money. (Myself included!) I’m going to try to avoid the Financial News and other market opinion articles to see if that helps me better navigate the markets.

I waited until about 90 minutes into the trading day before pulling the trigger. I was waiting for the intra-day lows and several moving averages to hold prices up. When they did, a rally commenced and I jumped on-board. I entered a long position in the S&P500 at 1,158.

Within an hour of going long at 1,158, prices rallied 7 points to 1,165. There was a healthy bull flag, and then prices pushed to 1,166 before taking a breather. By shortly after 2pm, the intra-day moving averages “caught up” with prices at 1,161.50, and the rally resumed. By 3pm, prices were back up to 1,165. It was “choppy” into the close, but prices remained near their highs. We settled the day at 1,165.

There’s no doubt that the bulls remain in control of this market. The VIX (sometimes called the “fear index”) fell to its’ lowest levels in quite some time today, which is bullish for the stock market. Gold and oil prices remained strong, which is bullish for the stock market. The U.S. dollar recovered from earlier lows, but closed down slightly today (which is bullish for the stock market). Bond prices were strong at the open, but then fell most of the day before closing in the red (which is bullish for the stock market).

There is resistance above between 1,171 and 1,181. I plan on taking some profits inside the resistance zone, as will many other traders. I fully expect there to be some wild action at those levels. 1,181 is a key Fib retracement level that everyone will be watching closely. At the moment, I feel like this market will be able to overcome 1,171 to 1,174 without too much difficultly. Above there? We’ll see when we get there

I’m back, baby!

Performance of my current trade: +0.98%

Performance since July 27, 2010 (74 days):

S&P500: +4.60%

Me: -8.05% (5 winning trades, 7 losing trades)

 

Beaten Up and Down

It’s been a crazy 4 weeks since my last blog entry. 

Trading Results:

My swing trading results over the past 4 weeks have been horrendous.  6 out of my last 7 trades have been losers.  Over the past 71 days, the S&P500 has risen by 4.2% while I’ve lost 8.9%.  I’m shaken.  I have absolutely no confidence in my ability to identify a changing trend, much less select an appropriate entry point.  I’m in cash (albeit less of it), and staying there until I figure out what I’m doing wrong.

Personal Finances:

I wrote a while back about my personal finances situation.  (See these two posts from June 2010 for all of the details:  http://bitheadturneddaytrader.wordpress.com/2010/06/17/changing-priorities-%e2%80%93-part-1-of-2/  and http://bitheadturneddaytrader.wordpress.com/2010/06/19/changing-priorities-%e2%80%93-part-2-of-2/ )  We’ve cutback our expenses significantly since then, and have been on track as far as servicing our debt (primarily our home mortgage and consolidated car loan).  But what’s still suffering is our Savings.  We have none.  Well, actually… less than none (currently $350 over-drawn).  Once the bills are all squared away, there’s nothing left to set aside for a “rainy day”.  While the bleeding has been significantly less than in previous months and years (primarily due to our cost-cutting measures), it’s so frustrating to get absolutely nowhere on the Savings front.

Things could be worse, of course…my wife could have no work in the pipeline.  Her work queue is still significantly reduced, but it’s not zero and we’re good for October and a portion of November.  Beyond that, we have zero visibility.

Nia Instruction & Studio:

My wife has her heart set on assembling her Nia Studio shortly after Thanksgiving.  I understand and support her desire for this personal space; she needs it for her well-being, and it’s her own career aspiration.  The plan is for there to be some modest income from her teaching Nia classes, offsetting the construction costs a bit.  But initially, we’ll have to move backwards on our debt load in order to make it happen.  It’s a far cry from the funds that I have to amass and commit to for my trading career (see below) but it’s not zero.  And of course anything spent here puts me that much further away from my own career aspirations.

Trading Coach:

I’ve found someone that can help me become a Professional Trader.  She is a full-time Trader herself, and mentors select individuals.  She’s very analytical and disciplined and, most importantly, successful.  She interviewed me via Skype last week and she’s agreed to take me on as a student.  That’s great and exciting news, right?  Yes and no…

We really hit it off and I’m pleased that she feels that I’m a worthy candidate for her coaching program.  There are 2 problems – Money, and Money.  The full year program costs US$3,000… which I don’t have.  And, once I’m trained and ready to jump to full-time trader status, I’ll need somewhere between $50,000 and $80,000 in trading capital (cash) available to me in a trading account… which I also don’t have.

There are some baby-steps that I can take, like making smaller commitments of time & money to my training.  She offers smaller, more focused trading courses & material for between $300 and $700 each.  While I learn, I can also build my trading capital using what I’ve learned from her tutelage.  I’ll need about $10,000 in cash in order to grow my trading capital through actual trading.  Because I’m employed full-time and can’t install any software on my work laptop, I’ll have to trade after-hours from home.  The Forex (foreign currency exchange) trades nearly 24hrs a day and is very active / liquid around the clock which makes it perfect for just such an endeavor.

Another plus is that she’s committed to deducting the smaller course fees from the $3,000 price tag for the full year course, should I ultimately decide that’s the route to take.  The course content and way in which the training is facilitated is truly impressive.  And the $3,000 price tag is reasonable for a years-worth of one-on-one, personalized education.  Besides the skills and confidence that I’d gain from having completed the course, I could easily lose that much from poor trading in a matter of days.  The problem is that the $3,000 puts me that much further away from the $50,000 to $80,000 that I need to turn professional.

I.T. career:

Please forgive the crudeness but…  I am now being proactive about taking it up the ass at work.  That is to say, I’m not bothering to fight for what I believe is right; I’m just towing the company line.  Ironically, it’s probably better for my career to bend over and take it than it is to fight the good fight.  I really couldn’t care less about my I.T. career, aside from the steady income that it provides of course.

Health Issues:

My wife’s MS has been acting up lately.  She’s been dizzy every morning for the past couple of weeks, with varying intensity.  Her toes have also been numb.  Both are expected MS symptoms and the timing coincides with a change in seasons which is also expected.  But it’s still stressful and distressing when it happens.

My wife also had a cancer scare from some blood work that, as it turns out, was “stale” and gave erroneous results.  Of course we waited for 2 weeks to get a definitive answer.

And as if that isn’t enough… about 2 weeks ago, my youngest daughter developed a “Preauricular Cyst” in front of one of her ears (http://emedicine.medscape.com/article/845288-overview).  It’s an entrance to the sinus tract under the skin that can get infected.  After some hit-and-miss with various doctors, we finally got the right diagnosis and medication from Sick Kids (http://www.sickkids.ca/).  We’re very fortunate to live so nearby to a world-class medical facility.

Now, she’s developed a rash on most of her body, likely due to the strong medication that she’s on.  My daughter’s body – especially her skin – is very sensitive to change.  She’s in the waiting room of the doctor’s office as I type this blog entry.

In Summary…

• Abysmal swing trading results resulting in losses in our Retirement & children’s education accounts and, worse yet, a loss of confidence in my ability to trade
• An inability to set aside any cash savings over the last 3 months
• Nia Studio expenses that will move us in the wrong direction, and further away from my own goal
• Zero visibility to a portion of our income
• Career aspirations that require so much more capital than I ever expected
• Seasonal and unexpected health issues
• I’m taking it up the ass at work while I struggle with all of the above

I have some very serious number crunching ahead of me.  In addition to the regular grind of keeping up with our personal finances, I need to run through a mock 2010 tax season soon.  The information gathered from this will help me maximize the cash in our pockets come April 2011 (and probably April 2012 at this rate).  The more cash available to us, the stronger position we’re both in to make our career aspirations a reality.

Of course, something has to suffer in order to maximize cash at tax time…retirement savings.  I’m hoping that what I learn from my trading coach will result in better swing trading results, offsetting the lack of funds committed to retirement over the next couple of years. 

Thanks for “listening”.

A Trading Mentor

I’ve decided to seek out a mentor to help fine tune my trading skills and gain the necessary confidence to become a full-time Trader…

The last time I blogged about my journey from bithead-to-day-trader, I was contemplating a Trading Course of some kind. I found very few courses that are available in my area, much less those that represented themselves as anything but a “get rich quick scheme”. I felt like my time was better spent continuing my quest for higher education in the same way that I’ve done for many years… independently (see http://bitheadturneddaytrader.wordpress.com/about/ ). And by all measures of success that I can think of, I have certainly accomplished that…

Yet again, I have absorbed an astonishing amount of knowledge and gained even more experience in a relatively short period of time. If there’s one thing I’ve learned through this process, it’s that there’s always something more to learn. I discovered some incredible Professional Traders on Twitter and have been following their day-to-day activities and market observations. I’ve also been tweeting my take on the markets in real-time and have been pleasantly surprised at my accuracy.

To be certain, my productivity at work has suffered as a result. But I see that as a positive thing. It says to me that I’m so passionate about trading that even the greatest obstacles – a boss that monitors Internet usage intently, and a corporate network that blocks everything non-business related (especially sites that he sees me visiting frequently) and restricts the use of USB sticks … oh … and a full-time job ! – don’t keep me from advancing my trading knowledge and experience.

I don’t know exactly how a mentor/student arrangement will work, or if I’ll find someone compatible with me. Will anyone be willing to spend their valuable time helping me to achieve my dream? I’ll be sure to keep you posted.

P.S. I wrote and posted this blog entry while at work

Cash Is King

This morning, I exited my short position in the S&P500 at 1,122. The market has been very resilient at these levels, not even “losing it” after breaking a multi-day up-trend line. The technical indicators and market action favour the bulls now and I don’t want to be covering my short position during a break-out above 1,130. I’d rather take my loss now, remain in cash, and wait for confirmation that the break-out is real before going long. Or conversely, get confirmation that 1,130 couldn’t be sustained and establish another short position. Until then, Cash Is King.

Performance of my current trade (now closed): -2.77%

Performance since July 27, 2010 (51 days):

S&P500: +0.77%

Me:           -2.72% (4 winning trades, 5 losing trades)

Spinning Top

Just a brief update on where things stand…

I continue to hold my short position that I entered into at 1,107.75.

We tagged 1,124 yesterday, and 1,127 today.

The last 20 minutes of trading today saw us attempt another rally, tag 1,126.50, and then rapidly skid 5.4 points to close at 1,121.

Technically the uptrend is still intact but many technical indicators are saying that we’re “overbought” here.  That doesn’t necessarily mean that we won’t continue to rise but it weakens momentum.  With such strong resistance at 1,130/1, being overbought doesn’t help the bulls.

Today’s daily candlestick was one of “indecision” (a so-called “spinning top”) and is often found at the end of a trend.

Another bearish indicator?  … Bond prices made a solid bullish showing today after bouncing off of long term support yesterday. 

We are approaching options expiry on Friday.  That has a surprisingly strong correlation with when rally’s tend to fizzle.  /just say’n

Performance of my current trade:  -2.62% 

Performance since July 27, 2010 (50 days):

S&P500:           +0.65%

Me:                   -2.57%  (4 winning trades, 5 losing trades)

This Market Is Waiting For Something

The trading action the entire week has been difficult.  A number of professional Traders that I follow on Twitter have even commented on it.  So it’s not surprising that my results have been less than optimal recently, especially given that I cannot devote my full attention to trading while I’m at work.

On Thursday, I went long the S&P500 at 1,106.  On Friday, I exited my long position around ~ 1,107.50 for a minuscule profit (essentially break-even).

Friday’s trading action began “even” with yesterday’s close (1,104), and then some big buying crossed the wire propelling the S&P500 to 1,108, and then 1,110.  After an unsuccessful second test of 1,110 (major resistance), prices reversed course to 1,108 where they found support.  (The same thing happened on Thursday, but the reaction was less violent on Friday. )  After what eventually played-out as a bear-flag, support at 1,108 broke.  As soon as that happened, I exited my long position ~ 1,107.50.

My decision to exit my long position was driven by mostly technical factors, but there was one tell-tale sign that there was further downside to come:  Other market indices like the Nasdaq, and the Financials sub-group weren’t participating in the rally.  Worse yet, they had already begun to make lower highs and lower lows.

I was in cash over the lunch hour.

Shortly after Noon, the selling stopped at 1,105, and rallied back up to 1,108.  There were four(4) attempts to break through 1,108 before a final push to 1,109 occurred.  Then a pause.  Then a reversal to 1,108.  That formed an “Evening Star” candlestick pattern which is indicative of a reversal.  I pulled the trigger and shorted the S&P500 at 1,107.75.

Shortly thereafter, the bulls seized control, driving prices up to 1,111 briefly, before profit-taking into the close had us wrap-up the week at 1,109.55.

Upon further reflection, I should have remained in cash; I shouldn’t be in this short position going into the weekend…

I see further upside to between 1,115 to 1,130.  Depending upon how you draw the trend lines, we’re in either a rising wedge (bearish) pointing to ~ 1,115 (and then we break lower), or an ascending triangle (bullish) which would break-out and likely push to 1,130.  Either way, I should be in cash right now waiting for the market to tell me where it’s going.  One thing is for sure, this market is waiting for something.

Performance of my current trade:  -0.61% 

Performance since July 27, 2010 (46 days):

S&P500:           -0.39%

Me:                    -0.56%  (4 winning trades, 5 losing trades)

Moving On

Let’s forget about what I did yesterday that saw me reduce the value of my portfolio by 2.6%.  Suffice to say that, since July 27, 2010 and going into today, I had 2 additional losing trades under my belt, and was +0% instead of +2.6%   .

Today, I pulled trigger and went LONG the S&P500 at 1,106. 

After opening strong and quickly driving up to 1,110, backing-off and testing 1,110 again, the S&P500 fell to 1,102.50 where it found support.  (1,102.50 was yesterday’s high, so the opening gap-up was also filled by this intra-day move lower.)  The bulls then proceeded to bid prices up in an orderly fashion to ~ 1,107.50.  It was during this recovery that the intra-day moving averages aligned again and I went LONG at 1,106.  In the last 20 minutes or so, prices abated once again and settled at 1,104.18.

The S&P500 closed 1 point above its’ 100 day moving average, and 1 point below the highs of the past 4 days.  The daily MACD is now in positive territory, and the moving averages that I follow either provided support today, or are now in bullish alignment, or both.   In addition, the NYSE McClellan Summation Index, and the S&P 500 Bullish %age charts are both bullish.

As I post this blog entry, Japan’s Nikkei is up 1.98% to 9,278.  You’ll recall that the Nikkei has been floating above/below the all-important 9,000 level for several days now.  A close above 9,300 would be very bullish and could propel European markets and subsequently U.S. markets higher tomorrow.

Performance of my current trade (including 2.5% cash):  -0.50%

Performance since July 27, 2010 (45 days):

S&P500:                  -0.87%

Me:                            -0.53%  (3 winning trades, 5 losing trades)

Show me the trend

Since my last blog post, the S&P500 rallied every day, and now sits at the top of the long term downtrend channel at 1,104.51.  Friday’s price action was particularly bullish.  Prices opened higher, got rejected by historical resistance and the 100 day moving average, and then staged a recovery rally before closing within half of a point of the intra-day high.  The price action on Friday was so strong that I decided to exit my short position.

There are now conflicting indicators across the 5 minute, 60 minute, and daily charts.  As such, it’s safer to sit on the sidelines in cash until a new trend is established.

Some key levels:

1,095 – historical support

1,100 – historical support

1,105 – approximately where the top of the long term downtrend line currently sits

1,106.25 – the declining 100-day moving average

1,107 – historical resistance

1,121 – historical resistance

1,129 – the high from early August

Performance of my current trade:  -10.1% (now closed)

I’ve decided to report my performance relative to the performance of the S&P500.

Performance since July 27, 2010 (41 days):

S&P500:           -0.84%

Me:                   +2.6%  (3 winning trades, 2 losing trades)

Ouch!

The S&P500 opened even higher than the futures indicated it would, +16 points to ~ 1,065.  Trading remained around those levels until 10am when the ISM Manufacturing Index data was released.  It rose to 56.3 when consensus expected a decline.  56.3 was also higher than the highest estimate.  So, it was a very pleasant surprise for the bulls.  As a result, a wave of buying propelled the S&P500 even higher to the 1,077 to 1,080 level, where it remained most of the day.

The 1,080 level is another key resistance level which very few traders, myself included (obviously), thought would come into play today.  There’s a confluence of resistance at 1,080 including historical-support-turned-resistance, and a variety of moving averages (see chart, below).  As expected, the rally was contained here.  The high on the S&P500 today was exactly 1,080.00 until the last 15 minutes of trading…

At 3:45pm, the S&P500 gave one final thrust upwards, reached 1,081.30, and backed-off ever so slightly.  The S&P500 closed the day +31 points closing at 1,080.

If there was one silver lining today, it’s that I wasn’t short the market using a 3x Bear ETF, priced in U.S. Dollars.  (The U.S. Dollar also took it on the chin today which would have made matters even worse.  Thank-you, Gareth for pointing this out to me http://garethgreenblog.wordpress.com/ .)  So, being in a 2x Bear ETF that is priced in Canadian Dollars did moderate my losses today. 

Still, I’m regretting having pulled the trigger yesterday.  What I should have done is wait for the trend to be broken, and also wait for confirmation.  Instead, I’m in loss minimization mode, looking for a pullback tomorrow to recoup my losses.  If we do break above 1,080 and stay there, I’ll be exiting this trade.

Stepping back to a 6 month view (see chart, below), today’s rally has the potential to define a lower high, albeit outside of the short term downtrend channel.  We could also see a back-test of the downtrend channel before resuming our ascent.  Or, we simply push higher from here.  A break of 1,065 would nullify today’s rally.

Only time will tell, but I believe the market will consolidate (pause, and move slightly lower) on Thursday, and then Friday’s payroll numbers will drive the next major market move (up or down).  I rarely agree with the talking-heads on CNBC.com but I concur with Bob Pisani’s take: http://www.cnbc.com/id/38958389

Performance of my current trade:  -5.95%

Overall performance since July 27, 2010, including my current trade:  +7.02%  (3 winning trades, 2 losing trades)

Short the S&P500 at 1,049.50

Yesterday, I shorted the S&P500 at 1,049.50 after yet another bounce off of ~ 1,041. Unlike last Friday, the bounce failed to inspire traders to stage an impressive rally.

I entered after repeated attempts failed to push above the declining 50 period moving average (5 min chart). (Also at the time, the 50 period MA was below the 200 period MA which is a requirement of my trade entry strategy.) In hindsight, my entry point was a bit premature on an intra-day basis as the S&P500 did manage to push up to the 200 period MA briefly at 1,055 before reversing course aggressively. (That’s the so-called “head fake” that I’ve mentioned a few times before.)

Yesterday, we also saw Mastercard “fall off of the $200/share cliff”. It was caught in a descending triangle pattern that only needed time before breaking-down, and it did so today. It took the rest of the market with it (especially Visa) before finding intra-day support. Once that happened, the S&P500 rallied back up to close even on the day – and equal to where I shorted it – at 1,049.33.

The tech-heavy Nasdaq close firmly into negative territory yesterday while Financials (surprisingly) closed firmly in positive territory. So, it was a mixed day so far as the sub-sectors were concerned, which explains why the S&P500 printed an “indecision” candlestick.

This morning (September 1, 2010), Asian, European, and futures are all strong on very good manufacturing & auto sales figures out of China overnight. S&P500 futures are up 11 points at 1,060 which is major resistance and also happens to be the top of the declining trendline. The ADP Payroll data came in weak earlier this morning but that doesn’t seem to have changed trader sentiment. ISM Manufacturing data is due out at 10am (30 minutes into the trading day) so it should be interesting to see what happens at the open of trade, and up to ~ 11:30am. Needless to say, I want the Big Boys to sell the gap open.

24-Day Trade Yields +13.5%

Overnight, the S&P500 Futures were up 8 points to 1,073, up from Friday’s close of 1,065. This surge in positivity came on the heels of an emergency meeting of the Bank Of Japan (BOJ). At the time, the Nikkei was up a whopping +2.9%, over the 9,000 mark to 9,252. The rumour was that the BOJ was going to announce a “monetary easing” policy. Once the BOJ released the details of their policy change, it was met with less enthusiasm and the Nikkei lost about half of its’ earlier gains closing up +1.7% to 9,149. This also drove the S&P500 Futures back down to ~ even with Friday’s close of 1,065.

Notwithstanding the obviously luke warm reaction to the BOJ’s announcement, I reflected upon Friday’s price action, particularly off of the 1,040 level. I concluded that remaining short this market makes me nervous. Ideally, a purely technical trader wouldn’t allow an emotion to affect his/her trading decisions. However, my “nervousness” is based upon all of the technical bullish indicators that led me to conclude that the S&P500 is on its way to between 1,070 and 1,075. ( See my previous blog entry, http://bitheadturneddaytrader.wordpress.com/2010/08/29/heading-for-1070-to-1075/ )

When the S&P500 Futures dipped about 2 points into the red this morning, I decided to take the opportunity to exit my short trade altogether, for another half-percent of profits vs. Friday’s close. Two seconds into today’s trading day, my exit order at 1,062 was filled, putting an end to a 24-day trade that yielded me +13.5%.

It’s now well into the lunch hour and the S&P500 has had a weak showing today. It has fallen to as low as 1,056 before finding a bottom (for the time-being). With all of the bouncing around lately, I am far happier being 100% in cash, waiting for my next trade to setup.

Heading for 1,070 to 1,075

The S&P500 closed the week at 1,064.59.  Friday saw a sizable rally into the “resistance zone” between 1,060 and 1,075.  Between the rally and a weakening U.S. Dollar, Friday’s action shaved 4.1% from my overall profits.  I closed the week in a +13.0% overall profit position.  I remain 1/3rd in cash.

Friday’s rally felt like a reversal day.  The bounce off of 1,040 was violent, and the rally following that and into the close was strong.  We’ve also now seen four days where we’ve been at or near 1,040 and held above it.  The U.S. Dollar has also put in a new high and appears to be “resting” (before heading higher) or reversing course; time will tell.

1,070 to 1,075 will be formidable resistance – it is a 50% Fib retracement level, gap resistance, and good old historical support/resistance.  Also, the 20 day MA is 7 points from crossing down through the 50 day MA (which is bearish); the 50 day MA is currently at 1,084 and falling.  Finally, the 20 day EMA is at 1,080 and falling as time passes.

If 1,070 is overcome and maintained, I will exit half of my remaining short position.  Any sustained rally above 1,075 will see me exit my short position entirely.  A stall between 1,070 and 1,075 will see us put in yet another lower high, confirming the downtrend as intact.  A stall would also see me put my cash to work in a(nother) short position in the S&P500.

Failure to sustain a rally

After my earlier blog entry, the S&P500 failed to overcome the 1,060 level and rapidly reversed course to 1,055, and then to 1,052.  For the next couple of hours, prices bounced around between 1,052 and 1,055.  Finally, at 1:30pm, the earlier low of 1,052 was broken and the selling resumed.  At the end of the day, the S&P500 closed at 1,047.

As the selling resumed around 1:30pm, money continued to pour into bonds.  The VIX spiked when the 1,060->1,055 sell-off occurred.  The USD/CAD relationship also recovered significantly into the close of trade from -0.7% to only -0.27%.

A market rally to somewhere between 1,060 and 1,070 is still possible, although the likelihood of that happening was significantly reduced by today’s bearish trading action.  In fact, in inability for the market to sustain a rally when it really should have been able to given the surrounding conditions at the time, is very negative indeed.  As such, I think another test of 1,040 is in the cards for Friday.  (My previous blog entry demonstrates how the market backdrop and technicals were pointing to higher prices.  Had I been Day Trading today, I probably would have been caught on the wrong side of the trade when the 1,060->1,055 sell-off occurred.)

My overall trade results, including my short position, currency conversions, and all cash:  +17.1%

On Friday, we get U.S. GDP numbers at 8:30am before the market opens, and then Consumer Sentiment numbers at 9:55am, and Bernanke speaks at 10:00am.  All of them have the potential to move the market.

1,040 Held

U.S. Markets gapped lower again yesterday after U.S. Durable Goods Orders came in well below the lowest estimate and way below consensus. At 10am, U.S. New Home Sales also came in well below the lowest estimate and way below consensus. The S&P500 fell to as low as 1,040 where support held and an intra-day rally commenced. The rally was stronger yesterday than the previous day, getting all the way back to 1,060 before backing-off 5 points to close at 1,055. The candlestick on the daily chart that was printed yesterday was bullish, indicating that a low has likely been put in for the time-being.

As anticipated, the markets opened modestly higher today and have pushed up to the 1,060 multiple times already. I think it’s likely that we’ll see 1,060 overcome as there appears to be money exiting the USD today.

I am looking for a run up to 1,070 and then confirmation that a lower high has been put in before considering putting my cash to work again. If markets move higher than 1,070, I’ll seriously have to consider exiting my short position altogether.