Happy New Year's Resolutions

2007 New Year’s Resolutions

To be a more disciplined trader (for me, that means tighter stops)

To continue to observe strict money managment.

To achieve consistent profit in the market.

Update trading checklist; add new things I’d like to use and delete those that do not work in this market condition.

Most of us started trading with high hopes of success but we let our emotions and greed take over. Instead of taking the time to develop and test a prudent trading plan that works for us on paper, we just jump in with both feet and start using real dollars well before we’re ready. After all it looks so simple! How quickly the markets will humble us and beat us down if we are trading out of greed instead of a well thought out trading plan. It is at this point that many will give up and quit, but those of us who step back and rethink our trading approach will survive as we go through a rebuilding process. Successful traders aren’t quitters, we don’t give up. We learn from our mistakes, we become better persons and we succeed.

Don’t make the mistake of many who have tried and failed. They failed because they did not keep on keeping on. They did not persist in creating new plans to take the place of those which failed. When your plans fail remember that temporary defeat is not permanent failure unless you give up, unless you quit. You are never whipped until you quit. Even the best trades have bad days, accept temporary defeat as a learning process of how and what you need to improve at and make a new plan and then start all over again.

No one can expect to accumulate a fortune without first experiencing temporary defeat. When defeat comes accept it as your signal to assess what went wrong, and make new plans that put you on your way towards accomplishing your goal. If you give up, if you stop making new plans before your goal has been reached you are a quitter. A quitter never wins and a winner never quits.

Insider Trading

ASIA – Holdings, Inc

Holdings, Inc. and its subsidiaries provide telecom software solutions and information technology (IT) security products and services to the telecommunications market in China. Its products and services enable its customers to build, maintain, operate, manage, and develop communications infrastructure. The company operates in two divisions, Technologies and Lenovo- . Technologies division provides business support systems/operating support systems, including billing, customer relationship management, intercarrier network access payment management, and operating analysis and decision support systems and solutions; and network infrastructure solutions consisting of network access and backbone infrastructure planning, design, and implementation for telecommunications and Internet service providers. It also offers service application solutions, including messaging software to support electronic mail systems, antispam software, antivirus solution for scanning and clearing viruses before emails are downloaded, and a support platform for value-added short messaging services, as well as a network hard disk product that facilitates Internet-based file transfer, sharing, and management. Lenovo- division principally provides IT security products and services for small to medium size companies with a focus on the firewall and virtual private network sectors. This division also offers financial services IT solutions, including bank core business processing systems, bank business performance management systems, bank call center systems, and bank notification systems. Holdings was founded in 1993 and is based in Beijing.

Towards the end of November two insiders made some rather large purchases of ASIA stock. Directors James Ding and Edward Tian together bought 2.45 million shares at a total cost off $14.61 dollars. On the same day of the purchase, “On November 29, 2006, Holdings, Inc. (the "Company") entered into a Strategic Investors' Agreement (the "Agreement") with CITIC Capital MB Investment Limited, an exempted company organized and existing under the laws of the Cayman Islands ("CITIC Capital") and PacificInfo Limited, an international company organized and existing under the laws of the British Virgin Islands ("PacificInfo"). PacificInfo is wholly-owned by Mr. Edward Tian, a founder and stockholder of the Company and a member of its board of directors.”

The stock has been in a consolidation mode for most of the year as it continued to bump its head up against overhead resistance at the up sloping red trendline. Then just days before the large insider purchase he stock exploded upward to new highs. On December 11th, the stock hit a 52-week high of $7.21. Once the new high was established the stock then retraced back to support at its 30-dma. The stock trades in the technology/computer networks industry which is trading at new yearly high prices. Currently, the MACD’s are revealing a sell signal while the Stochastics have rotated flat.

A Position Trader-A real trade

Let’s take a look at an example of how this strategy works. The chart above is a five-minute chart of Mastercard [MA].

It looks like we have all four guidelines present for the mid-day setup. During this time the stock was trading higher than the previous day’s closing price, and it was also trading above its opening price. During the mid-day time period the stock was tending sideways at or near the day’s high and it had been doing so for more than 1 ½ hours. Now that we have the first four guidelines setup this stock goes on our list and we wait for the late-day time period to begin at or around 2:15 p.m

Around 2:15 p.m. as soon as our stock breakouts of its sideways channel we place a buy order. We buy the stock when it trades one tick above the sideway intraday high prices. A tick is simply a price unit that the stock trades in. For example, if you were to look at a NASDAQ Level II screen and you saw that the inside ask or best asking price that you could buy the stock was $94.00 and the next higher price above that was $94.02.

We also have all three guidelines present for the late-day breakout. During the mid-day time period as the stock was consolidating it reached a high of $94.60, so once the late-day time period begins and the stock trades above this price by one tick or 0.02 cents (the stock trades in 0.02 cent increments) then you would enter the trade. A stop-loss could be placed just below the low price of the mid-day sideways price base which reached a low of $93.95. Lastly, we’ll exit the trade once prices pull back. This will be a judgment call as to how much you are willing to let prices pullback before you exit the trade. The main thing to remember is to never let a wining trade turn into a losing trade. Meaning if you had entered this trade and were profitable right from the start as the stock rallied higher and you noted a pullback, don’t wait too long to exit the trade that all the earlier profits are given back as the stock retraces. Exiting at breakeven is much better than exiting at a loss.

A Position Trader

A trading strategies for swing and position traders is a technique for those traders who have the time to watch the market throughout the day and have access to inter day charts. Trading inter day requires a high degree of skill and the ability to emotionally detach from the markets.
Typically the middle of a trading day falls within the time periods of 11:15 a.m. and ends somewhere around 2:15 p.m. EST. It is during this time period that someone who watches the market all day long will note that things really begin to slow down often becoming very choppy in nature not really trending in one direction or another. For that reason, this is frequently one of the hardest times to trade during the day.

On the other hand, during the time period of 2:15 p.m. to 4:00 p.m. EST things begin to stop churning and start trending. This is the time period that we will be looking to actually place our trade. After a morning rally in the markets, the mid-day doldrums soon follow as the markets begin to consolidate. It is during this time that the setup for our trade begins to take shape. However, once mid-day has passed we’ll be looking to take advantage of the price action that occurs between 2:15 p.m. to 4:00 p.m. EST.

This strategy is by using a five minutes inter day charts. Here are the guidelines that we’ll use for the trade setup:
The stock needs to be trading higher than the previous day’s close. The stock should be trading at or above its opening price. During the mid-day time period the stock should be trending sideways at or near the day’s high price. On a five-minute chart, the sideways trend should be at least 1 ½ hours in length.

During the mid-day time period the trader will stop trading and go searching for stocks that meet the above criteria, and make a list of these stocks. Once the list is in place the trader waits for the time period from 2:15 p.m. to 4:00 p.m. EST to commence.

Below are the guidelines used to trade the late-day breakout: Again using a five-minute chart, the trader will initiate a trade once prices move one tick above the side way inter day high prices. Once the trade has been initiated the trader will place a stop-loss just below the mid-day side way price base. The trader will then exit once prices begin to reverse direction or exit at the end of the day with a Market On Close order.

We will exit the trade once prices pull back. This will be a judgment call as to how much you are willing to let prices pullback before you exit the trade. The main thing to remember is to never let a wining trade turn into a losing trade. Meaning if you had entered this trade and were profitable right from the start as the stock rallied higher and you noted a pullback, don’t wait too long to exit the trade that all the earlier profits are given back as the stock retraces. Exiting at break-even is much better than exiting at a loss.

if you’re lucky enough and the stock should continue to run higher for the rest of the day without significantly pull back in price, then you can exit at the close of the day (and hopefully the high of the day) with a Market On Close order.

This trading strategy is not for all, but it can be used successfully by those who have the time to watch the markets throughout the day.

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Stock valuations for the year ending 2006

We often hear things in the stock market like (P/E) ratio. So what does this indication really mean. In general this means using measurements to determine if stocks are valued higher or lower that the historical mean.

The year of 2006 is almost coming to an end and the DOW is at historical high at 12,000 level
The price to earnings (P/E) ratio has outpaced the rise in the S&P 500 index during the past two years. In the third quarter of 2004, the S&P 500 P/E ratio was 20.3, in the third quarter of 2005 it was 18.4, and the just completed third quarter of 2006 has a P/E ratio of 17.5. If you look at operating earnings the numbers are even better, with a current operating P/E ratio of 16.0.

Therefore the decline in the P/E ratio is a bullish factor. As long as this type of earnings growth continues to outpace the market, the rally will continue. Athough the current P/E ratios are slightly above historical averages, but nevertheless represent very good value given current economic conditions.

A standard starting point used in the market for valuation is to compare the P/E ratio based on expected future year earnings to the yield on the 10-year Treasury bond. On this basis alone, stocks could be considered significantly undervalued. The P/E ratio for the next twelve months based on just 5% growth in operating earnings is 15.3. That is equivalent to a 6.6% earnings yield (this is earnings divided by price). That compares extremely favorably to a current 4.7% yield on the U.S. Treasury 10-year bond. By this measurement stocks could be currently undervalued by over 40%.
So the overall market is fairly bullish, and as long as inflation is kept in check that the market could continue to rally . Of course there are always the unknown factors, including world events such as terrorist and oil factor which can always change things quickly. But for now, these factors are aligned in a bullish way.