Options Trader Journal

Bull Put Diagonal Spread for Earnings announcement

2007-04-16T03:51:00.000-07:00

Profile: Steel Dynamics, Inc., together with its subsidiaries, engages in the manufacture and sale of carbon steel products in the United States. It operates in three segments: Steel Operations, Fabrication Operations, and Steel Scrap and Scrap Substitute Operations. Steel Dynamics was founded in 1993 and is headquartered.

Trading Stance: This is going to be a great lesson for all of you who have never held a stock through earnings and profited. You’ll see the surprises if any, the immediate volatility changes in the options and the actions needed to be taken if a reversal occurs.
That said lets look at the stocks position as it sits at the one year and five year high.
Even though we’ve initially entered a bullish trade we do expect a bit of profit taking to step in (eventually), that is why we’ve used puts instead of calls since a mysterious reversal could always be triggered. So for now we’ll see what the news will bring us on Tuesday and of course this next week is April expiration, that too could be exciting but shouldn’t affect our May position adversely.

Control your Money

2007-04-15T03:54:00.000-07:00

The first and most important rule of trading real money is to use only "risk money." Risk money is money that you can afford to lose. It would not make you happy if you did lose it, but your life would go on without any change. In other words, risk money is money that is not needed for any necessity. As we transition from paper trading to real money trading, we must not use the rent money, mortgage money, grocery money, car payment money, insurance premium money, or tuition money. If that is all we have, it is not yet time to trade real money. Using money to trade that is needed for some necessity is dangerous and can cloud judgment. It places undue pressure on us.

As we begin trading, we must understand it is a business; successful traders rarely are gamblers. They do everything they can to put the odds in their favor. In addition to using only risk money, they carefully manage the money they are trading. One way to manage money for the beginning trader with a small account is to make equal dollar trades. If the trader is starting with $5,000 for example, each trade might be $500 or $250. What we don't want to do is make one trade $2,500 and the next $250. How could we possibly know which one is going to be successful? Generally, Murphy's Law goes into operation and we have a big loss on the $2,500 trade and a small gain on the $250 trade. Trading in that fashion soon takes the trader out of the game. Our first objective is to stay in the game. Making equal dollar trades helps us do that. Even if we lost all the money risked on one trade it would not be the end of the world. Of course, if we have a good exit plan, it would be unlikely that we could lose everything invested on the trade. On the other hand, if we placed a large portion of our money at risk on a single trade, it could end our career.

That sad story is all about money management and greed. If we manage our money properly, we remove a large part of the risk and prevent our greed from enticing us to do what the fellow in my example did. As we begin to trade real money, we are still building our confidence. Our paper trading may have been very successful, but it just isn't the same. Now, something important is on the line. Take it easy. Build confidence with equal dollar trades. If you lose part of your money on a small trade, so what? You will have losing trades so keep the losses small.

I believe an even better way to manage trading money is to use equal percentage trades rather than equal dollar trades. That is difficult to do with a small account, but can definitely be utilized as your account grows. I personally favor making trades where only 3% to 5% of risk money is placed at risk in any given trade. When losses are incurred and the account value drops, the next trade automatically is made for a lesser amount and when gains are made, greater amounts automatically are invested.

This seemingly simple device of managing money can build confidence, protect assets, and enable the trader to stay in the game.

Reasons to Trade

2007-03-24T18:22:00.000-07:00

One of the critical elements of trading he addresses is the psychological. Many of us have heard and mouthed the rubric that the markets move on fear and greed, but few of us have taken the time to understand how those emotions really work in moving stock prices.

It seems obvious that we trade to make money, but that may not be the real motivating factor for many. There can certainly be a "rush" from making trades. Some traders, it seems, trade just to trade. They are caught up in gambling mode and, for them, it seems critically important to trade without real regard to real liklihood of success. In spite of the market conditions they continued to make trade after trade even though only few were successful. I asked him why they were doing that and said to have money working all the time.

Clearly, there are times to enter bullish trades, times to enter bearish trades, and times to go play golf or go fishing or do something other than trade. If we do not recognize and believe that there are times not to trade, our successes will at least be seriously undermined by our losses if not completely outpaced by them.

Silicon Motion Technology Corp. (SIMO)

2007-03-24T18:21:00.000-07:00

It looks as though SIMO may present a call buying opportunity if it retreats to the 10 day or even 40 day moving average and then bounces up. I'll need to be careful to assure enough open interest when looking for the right calls to buy.

Bear Call Spread-March 07

2007-03-18T04:46:00.000-07:00

CEPH
$67.25 Bear Call
Sell Apr 75.00 call $0.80
Buy Apr 80.00 call$0.30
return $0.50
11.11%

Technicals: The stock peaked in March of last year at a 52-week high of $82.92 and then promptly turned around falling to a 52-week low of $51.58 just a few months later. More recently, prices have been channeling sideways between overhead resistance, now near $75, and support below around the $70 mark. Last week, prices slipped below support for the first time in months giving us a breakout to the downside. The stock may return to test old support as new resistance, but for now things are looking weak. The stock trades in the health care/biotechnology & drugs industry which continues to pull back over the last two weeks and the stock’s fundamentals are very weak. Currently, both the MACD’s and the Stochastics are revealing sell signals.

Bear Call Spread-23 Feb 07

2007-02-23T21:10:00.000-08:00

Sell Mar 100.00 call$0.85
Buy Mar 105.00 call$0.30
Return $0.55
12.36%

Technicals: The stock hit a 52-week low of $49.25 back in March and then began a long-term rally that resulted in January 52-week high of $109.45. This new high was the result of the prices breaking out of a Symmetrical Continuation Triangle. This chart pattern is considered to be a bullish signal as it indicates that the current uptrend may continue and that is just what took place. As the target price was hit the stock has reversed direction slipping back below a former area of resistance. In other words, when prices did finally come back to test old resistance as new support the stock failed to find support and has now fallen below its 30-dma as well as the trendline. The stock trades in the services/casinos & gaming industry which is trading near its yearly high prices. However, its fundamentals are weakening. The MACD’s are showing a sell signal while the Stochastics are revealing a buy. We’ll expect overhead resistance around the $96 level to hold and keep prices below the lower strike price over the next few weeks.

Spread-19 Feb 07

2007-02-20T03:01:00.000-08:00

FFIV

Bear Call

Sell Mar 80.00 call$0.85

Buy Mar 85.00 call$0.35

Return $0.50

11.11%

Technicals: The stock bottomed out in August at a 52-week low of $40.55. After that low, prices reversed direction and began a long upward trend that resulted in a January 52-week high of $80.85. The stock didn’t participate in Wednesday’s strong rally after Ben Bernanke announced that inflation was in check. It makes us wonder if a possible Head and Shoulders Top pattern may be forming on the price chart. We won’t know for sure until the pattern is complete. The stock trades in the technology/computer networks industry which has been trending sideways for the last few months. The MACD’s are flat on the sell side and the Stochastics are also pointing towards selling pressure.

Trading is Tough

2007-02-05T05:38:00.000-08:00

Trading is hard. We aren’t talking about paper trading; we’re talking about taking your own hard earned money and risking it to test what you believe to be true. Trading is stressful. Real trading is difficult, and it can physically drain you. You could be soaring emotionally as you watch your trade profiting; then the next day, you may hit the depths of despair as another or even the same trade turns against you.

It’s during these times when a trade moves against us that we feel like giving up or we lose our focus and start aimlessly trying to make back our loss anyway we can. When I was a young inexperienced trader, if I found that I lost money trading a particular stock then I would be even more aggressive trying to get that lost money back. Of course, this resulted in more losses and more frustrations. What made it even more frustrating was that I knew of some other traders who were profiting off this same stock. I finally had to learn that I needed to stop trading that stock and go find one that I will succeed at, otherwise I won’ t have any money left to trade with. This can also be applied to trading systems. Why were others making a profit when I wasn’t? How come two different traders trading the same stock or system get so radically different results?

We all have our own personalities that make us uniquely different from others. Certainly you will have strengths, but you will also have weaknesses. Understanding yourself as a person is the single most important factor in deciding whether you succeed or fail as a trader. If you do not understand yourself, you cannot succeed, if you’re a stubborn person, you will find that this personality trait doesn’t work well when a trade is moving against you. Refusing to admit that you are wrong can be a very costly lesson. Make no mistake about it; your personality has a major influence on how you trade. It is more important than the broker you use, the stocks you trade or the latest and greatest trading software available. In Market Wizards, Jack Schwager suggests that the single most important element of a successful trader is in having a trading plan that fits your personality.

often get questions as to how I trade, and sometimes I have instructed my friends on what I do. However, when they try it, it doesn’t always work out as well as it does for me. If you find that what you are doing in your day to day trading isn’t working for you, then you need to adjust. Just because it works for your trading partner, doesn’t mean it will work for you. You may need to try several different trading instruments or trading plans until you find one that better fits your personality and then once you have found it, stick with it and don’t deviate from it. One of the most difficult aspects of trading is sticking with your trading plan. You will find yourself re-entering the market after a string of losses with the thought, "This time I will stick to my plan. I will not get sidetracked."

In theory, it seems relatively simple to make a trading decision based on a particular approach and then to stick to that plan. However, in practice, it can be difficult. Many obstacles and psychological hurdles are ready to trip us up at the very first opportunity. After back testing a trading system and proving to own satisfaction that the approach will work, we start out with a great deal of enthusiasm. We step forward with the very best of intentions; yet so often we find ourselves changing our plans in midcourse and losing out on what could have been a very profitable trade.

So what makes you think you can succeed? The market is littered with the corpses of those who thought they could beat the market with the latest technical indicator that has worked for the last 5 years. Then failed the next year, or when you tried it. Everyone's looking for the perfect system, the foolproof method, the quick solution, the get-rich-quick scheme. I have news for you — they don't exist. So you think you can succeed in the toughest market of all? What makes you any different from anyone else?

The answer is very simple — it's you. It is important for us to stay the course, but at the same time it is also important for us to remain flexible enough to change direction if the need arises.

PFE Put-23 Jan 07

2007-01-25T16:30:00.000-08:00

The stock was trading around a price of $26.29 on 23 Jan 07. The chart above is a daily chart of the Pfizer Inc. [PFE]. The stock is rated as an average stock because it is fairly valued compare to its industry, its sector and the S&P 500. This trade was made mid-day on Tuesday. The trader selected the stock because overall it is in a downtrend, trending lower since its high set back in September. As the trader has mention, the stock does have wild price swings to it but it does have a very strong resistance level above. It just reported unfavorable earnings and so the trader believes that prices will yield to weakness and fall lower towards support near the $23.25. Of course, once this happens the Put option will increase in value.

Buy a June 25 Puts at 0.60

Bear Call Spreads

2007-01-16T03:39:00.000-08:00

GSF – GlobalSantaFe Corp
GlobalSantaFe Corporation, through its subsidiaries, operates as an offshore oil and gas drilling contractor worldwide. It provides offshore oil and gas contract drilling services to the oil and gas industry on a daily rate basis

Sell Feb 60 call at 0.80
Buy Feb 65 call at 0.35
Return 0.45
9.89%

Technicals: The stock peaked in April at a 52-week high of $65.21 and then prices promptly fell to a 52-week low of $44.26 set in October. After the low point, prices turned around and traded up to but fell short of resistance at the $65 level. Once the stock failed to make a new high prices quickly slipped below the support area of the 30-dma and continue to trade lower on increasingly strong volume. The stock trades in the energy/oil well services & equipment industry which continues to pullback from an area of overhead resistance. Currently the MACD’s are yielding a sell signal while the Stochastics are showing a flat reading.

Goals setting for 2007

2007-01-08T03:42:00.000-08:00

100% confident, no fear, no frustration
Never hooked taking trades I shouldn''t
Trade offensively vs deffensively
Never beat myself on a losing trades
Never trade attacking my ego
Never rush into trades without preparation
Trade with NO stress
No big swins in profitability
Always discipline to stop as planned
Never get exhausted after the trading day
Sleep well at night
Spend time with my family
Execise moreFollow trading
PlanAdjust losing trades
Network with elites

Happy New Year's Resolutions

2006-12-31T16:17:00.000-08:00

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

2006-12-29T19:58:00.000-08:00

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

2006-12-21T01:35:00.000-08:00

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

2006-12-19T04:26:00.000-08:00

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.

BLOGSPOT HAS BEEN RE-LOCATED

2006-12-08T02:31:00.000-08:00

Blogspot has been moved to. Please visit my new website at :

http://www.options-diary.blogspot.com/

Stock valuations for the year ending 2006

2006-12-01T14:16:00.000-08:00

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.

Welcome back

2006-11-19T21:48:00.000-08:00

Hello, just back from a short hoilday in Australia and would shortly resume my trading again.

November was somewhat unusual . Historically tends to be one of the weaker months of the year for the market. That is definitely not the case this year, with a relentless rally still moving forward.

Economic Reports – This is probably the ‘rocket fuel’ that is leading this rally. Last week the Producer Price Index (PPI) came in with a decline of almost 1% for October. If energy prices are included the October decline was just over 1.5%. This helps the market because inflation concerns have been at the forefront of the bearish case for the last several months. To add to this, the Consumer Price Index (CPI) came in with just a 0.1% increase for October. Although this is all good news for the bulls, the Federal Open Market Committee (FOMC) did note last week that they are still concerned about inflation. But even with this concern, this factor should be rated as a bullish one for the market.

Energy Prices – Along with the rest of the good inflation news, oil prices continue to decline. The December crude oil futures contract dropped almost $5 per barrel last week. After all the doom and gloom in the media during the summer about oil going through the roof, it is now hardly mentioned in the mainstream media. This is also a bullish factor for the market right now.

Earnings Reports – The main earnings season is now over, but November does bring earnings reports for the major retail stocks. There was really no outstanding news here, with Wal-Mart and Target coming in slightly above estimates, and Home Depot missing estimates. Overall this is probably a neutral factor for the market right now.

Other factors – We are about to start the holiday season, which means a couple of things for the market. First of all, next week should be fairly quiet for the market, with no trading Thursday and a half day on Friday. The other areas the market will be watching are any reports or comments about the holiday shopping season from the major retailers. Good reports would likely keep the rally going, while some disappointing numbers could start a market pullback of some kind.

The Buy Setup-A real case study

2006-11-01T19:16:00.000-08:00

Alast week’s,I put up a simple buying strategy that can use to help to time trading entries and at the same time increase the likelihood of successfully trading the markets.

The setup only involves three steps. Two steps are for the setup and the third step involves the buy action trigger.

First – Look for a recent new high price.

Second – Look for three or more consecutive lower highs.

Third – We buy the stock when it trades one tick above the previous day’s high price.

Let’s take a look at a real example: The chart above is a daily chart of Continental Airlines [CAL]. On October 12th, after making a new high , the stock then pulls back for three days in a row. Each high is lower than the previous high (the second thing that we look for). But notice that the third lower high isn’t the same candle stick color as the previous two highs. That brings the question, “Does the color of the candlestick matter?” Absolutely not! All we are concerned with are the high prices; we aren’t concerned with the stock’s opening and closing prices.

Now that we have three down days we draw in or mentally make note of the third day’s high price and we set up the trade to buy one tick above this high price (our final step). In this case the stock closed at $30.83 but the price trigger was $31.29.

The next day the stock did move above the third day’s high price and the trigger price was hit and a beautiful little rally followed.

That's indeed a good trading

Breaking the cold streaks

2006-11-01T01:45:00.000-08:00

In the journey of trading, we do not always win on every games we play, every trader, no matter what their skills, has cold streaks.

The only way to break this “Cold Streak” is to stop trading for a while and call a time out
So that you can come back in a different state of mind.

If your schedule permit, why not take a break and engage in activities that will restore your mind to a state of rest and relaxation.

After a complete break will we have a refresh eyes to track the market again for potential trades and monitor price movement.

The most important is to sort out what has gone wrong.

This above process will help to move you into a better frame of mind and stop self abuses and self-destructive cold streaks.

In summary, you need time to reflect and improve, this will make trading more fun because you do not destroy your account and suffer self-abuse that comes along with it.

Warren Buffer did not trade the whole year of 1999.

The Secrets to Emotion Free Trading

2006-10-29T18:39:00.000-08:00

link below: http://www.trading-naked.com/library/EmotionFreeTradingBook.pdf

Open Interest

2006-10-29T18:25:00.000-08:00

Open Interest is the number of long or short contract that has not been exercised, closed out, or allowed to expire. Open interest acts more of an information item than an indicator.

Open interest increases whenever a new contract is created. when a buyer initiates a long position or a seller initiates a short position. Open interest decreases whenever an existing contract is closed.

Open interest shows how liquid the specific option’s contract is. If the open interest is very low, the option is considered to be ‘illiquid’, which also means it will usually be a wide spreads between the bid and ask and possibly very difficult to close the option out. The greater the open interest, the more confidence the trader can have that it will be simple to get into and out of a trade with that option.

We can study the volume analysis with open interest to find out the flow of money into and out of the market. The theory is that rising volume and rising open interest confirm the direction of the current trend, and that falling volume and falling open interest signal that the current trend may be ready to reverse.

Therefore, it never hurts for any trader to check the open interest before entering any kind of options trade and that large volumes are your friend in options trades.

Risk and Reward ratio-an alternate view

2006-10-27T17:10:00.000-07:00

The concept of a risk/reward ratio is simply for any given trade, you're targeting a certain amount of gain, while setting a stop-loss limit if the trade goes the against your direction. As a trader you want your reward to be at least a little better than your risk, a good rule of thumb is to seek a return of three times as much as the amount risked and making the reward/risk ratio 3 to 1 or anywhere between 2 to 1 and 4 to 1.

So as long as you're rewards are bigger than your risks, over time you will make money ? Unfortunately, it is not necessarily true , it is the the likelihood of a number of successful trade with the highest percent of gain that give the most reward.

Let's stick with the assumption that our optimal reward/risk ratio is 3 to 1 and assume you have a developed a trading system that produces one winning trade for every four trades. So, your win/loss ratio is 1 in 4 (25%), while your reward/risk ratio on a per trade basis is 3 to 1. Do you think you will make money with that system? Nope - for every trade that gains 30%, you have three more trades that lose 10%. The rewards were three times as big as the risk, but it didn't create any real profit! The best you could hope for is to break even.

Let examine another example. Say you've found a stock you think will move 20% higher, and you're willing to risk 10% to enter that trade. You're target is 20% above your entry price, and your stop loss is 10% under your entry price. With a reward/risk ratio of 2 to 1, this trade doesn't necessarily seem all that great. But, what if the trading system had a success rate of three winners for every four trades? You'd have a 75% chance of making 20%, while only a 25% chance of losing 10%. With that particular trade, your real reward-to-risk ratio would be about 6 to 1.

Bottom Line – The point here is not the setting of targets and stops based on a predetermined risk/reward ratio . Big targets and tight stops are pointless if the system is a net loser. Rather, focus on the actual risks and rewards of a total methodology. This will also force you to determine just how successful your trading system or stock picking really is.

Follow up on Options Play

2006-10-26T22:21:00.000-07:00

Carpenter Plunges on 1Q Profit Miss ,earnings per share $1.94 and Analysts polled by Wall Street were looking for much higher profit of $2.15 per share. Shares fell $13.59, or 11 percent, to $105.50.

On the other hand, NII Holdings (NIHD) beats on top and bottom lines Reports Q3 (Sep) earnings of $0.43 per share, $0.03 better than the Reuters Estimates consensus of $0.40; revenues.

So the games is draw.

Today Actions

2006-10-25T05:29:00.000-07:00

Tonight , I will be looking at 2 options play

NII Holdings, Inc(NIHD) provider digital wireless communication services and Carpenter Technology Corporation(CRS). Both are reporting their earnings on the 26 October.

NII Holdings and RIMM recently Launch BlackBerry for Nextel Mexico and Nextel Peru Customers and also announced a five-year extension of the company's current agreement with Motorola related to the iDEN network.The stock climbed on this contract.

Carpenter Technology Corporation (Carpenter) is in the steel and iron industry should also see some actions tommorrow after a big earnings from Nucor (NUE) yesterday. Steel had a big day

The Bull Still Charging

2006-10-25T05:04:00.000-07:00

The U.S. share market has soared on the back of speculative talk regarding interest rate reductions before the end of the year. The Dow Jones continues to push to record highs in recent times with the S&P 500 in close pursuit. Crude oil prices have also been on the decline for quite a while. NASDAQ too has had an impressive ran, adding to market momentum.

Despite the bull rage, I will continue to focus on trading prudently with suitable entry and predefined stops in place. There are probably still some big gains to be claimed in the coming months. ‘Trade with the market trend’ and stick closely to my trading plan. By locking in profits and taking moderate, well timed positions, Let us look forward to a very happy new year!

My trading rules

2006-10-22T21:40:00.000-07:00

Always Pay youreslf first-This is the first rule to save at least 10% of my paycheck so that I have money to invest.

Know my tolerance of risk-If I feel uncomfortable with my open position, this means that I have exceed my risk tolerance, my guildline is always only to invest 5 % of my total investment capital. This is also my money management rule.

Know when to exit-Choosing investment is easy, it is getting out that is hard, I always set an exit target point in every trade so that my emotion will not play a role in my trades.

Play an active role in my investment plan-It is my responsible to take care of my hard earned money , nobody cares about your money as much as you do and therefore it is important to spend some time on homework and get involved in my investment plan.

Don't be greedy-As Jim Cramer always put it"Pigs get fat and hogs get slaughtered , you will never lose money if you ring the register.

Bottom Line-Treat your investing like a business and it could potentially pay you like a business . Treat your investing like a hobby and it will pay you like a hobby.

Monday feelings

2006-10-22T20:08:00.000-07:00

The bull market was in fury last week, the Dow Jones has gone passed the all time high of 12,0000 marks. There seem to be no stopping the DOW and the NASDAQ from continuation of the bull rally and we may enter a "Santa Clause" rally moving toward December

Most believe that the current stock market rally has been fully justified because the key fundamental factors remain strong. The US economy is stable and not weakening as much as many in the market have feared. Based on the first half of quarterly reports, earnings report remain reasonably strong.

The interest rates is expected to remain constant in the immediate future and inflation outlook seem to be contained at good level at the moment to deter the Federal Reserve from making rate changes. Couple all of these factors with the current valuations in the market, with the S&P 500 stocks trading at around 16 times earnings and you can’t help to conclude that the overall market remains bullish.

Although earnings growth has remained strong despite some of the economic indicators slowing down, but the decrease in energy prices are helping the bull.

The only concern is that the immediate future of inflation to wary the market. The core rates of inflation, as measured by the Consumer Price Index (CPI) have been been up 0.2% each of the past two months and at this moment the market accepted without too much concern.

There are even analysts argued that some stocks tend to be undervalued at this point, based on the combination of interest rates, bond prices, and earnings growth. If more of the big institutions boys in the market start to feel this way, then the market cannot help but stay in rally mood.

Although there are always risks that the market , in short-term there are always chances of pullbacks and volatility. A short-term trader should always keep in mind support and resistance and position trades accordingly. For the intermediate-term, expect the bulls to continue to have the upper hand in the market. Hooray to the bull.

The business of trading

2006-10-22T18:52:00.000-07:00

Investing in the stock market is often exciting and at times can be very rewarding. The rewards are easy to explain because you want rewards, the more the better. However, when it comes to losing money , it is an entirely different feelings.

Trading is always associated with different level of risks and we often need to find the level of risk we are able to tolerate and comfortable with.

One of the biggest mistakes is that if we try to invest our money that we cannot afford to lose and we need this money for our basic living like buying groceries or paying our utilities bill , then that is not investing, that like gambling in Las Vegas.

The stock market has been proven to be a fantastic place to invest and grow our money over long period of time and accordingly to finding, it is one of the best asset that outperform other class of assets over a 20 years time span. However, investing in hopes of making a fortune overnight usually involves tremendous amount of risk and never be done except with "risk capital" which mean money you can afford to lose without changing your present lifestyle and financial circumstances if it is lost.

Investor often has to battle the emotion of fear and greed in the stock market and therefore we if we are not able know what has gone wrong and have the discipline to put a stop lost and a trading plan to exit because of greed , then our career in the stock market is often said to be short-lived. The discipline investors are said to be very mechanical and automatic. They have a trading plan and they stick to it as they know that not every investment is a winner.

As said earlier, the biggest enemy of an investor is emotion, when stocks are dropping and investment starts to lose money , you may get into "house of pain"and with this feeling, it is difficult to make good decision thereafter, worst of all, you find it hard to sleep.

In conclusion, managing the risk before going into a trade and stick closely to our pre-determined trading plan of entry and exit points will help us to take the emotion out of investing.

The Buy Setup

2006-10-22T17:56:00.000-07:00

Along our trading journey, we often want to buy a stock because we don’t want to miss out on the next big move and suddenly the next day we watch in horror as it gapped down and then fear sets in.

The Buy Setup strategy I was taught by a professional trader look as follow:-

First – Look for a new high price. We start by looking at a a stock that has hit a new high, not necessarily a new 52-week high, but has recently rallied higher breaking above recent previous highs. A general guideline to consider is that the stock should have made a new high no longer than eight trading periods ago.

Second – Look for three or more consecutive lower highs. This step calls for stocks to drop at least three days in a row with three lower highs. The high of each down day must be lower than the previous day’s high.

Third – We buy the stock when it trades one tick above the previous day’s high price.

The chart below shown an example of what the Buy Setup looks like.

This is a little useful trading entry technique that can use along with other technical indicators.

Options Play-23 Oct

2006-10-22T02:23:00.000-07:00

Some of the names I am watching for earning plays for options are:

IPS (IPSCO) is a steel and steel pipe producer and that was after watching another steel producer, Steel Dynamics (STLD) reported Q3 results $0.09 above consensus Reports Q3 (Sep) earnings of $2.17 per share, $0.09 better than the Reuters Estimates consensus of $2.08.

Apple (AAPL) which may not be done going up as it may hit above $80 since the start of the year with a 52 weeks high of $86 and with a record earnings quater they have , the share really has to do better than the 52 week high earlier in January 06.

Finally, on Google(GOOG) many believes that this stock is going higher beyond $500 per share.

Options Review on 17 Oct

2006-10-22T01:45:00.000-07:00

The bull market continues in fury, the Dow Jones industrials has gone passed the all time high of 12,0000 marks.

Let review the trades I mentioned earlier-

Parker-Hannifin CorpCorporation (PH) , which makes parts for the aerospace and construction reported first-quarter earnings soared 22 percent and earnings $1.75 per share above analysts estimated $1.48 per share. The stock gapped $3 on the opening bell to $87 , but ended the day with a disappointing $83. Hooray to those took profit in the earlier session.

Share of CSX Corporation(CSX) rose slightly on after the railroad reported quarterly earnings of $0.54 per share that topped Wall Street expectations of $0.51 per share on heavier shipping volumes and higher prices.

and General Dynamics Corporation(GD) reported a 17 percent increase in third-quarter earnings and earnings $1.08 per share was above the forecast of $1.06 per share of analysts surveyed by Thomson Financial. However, it gapped down to $2.00 per share and eventually ended the day with disappointment and further fell on Thursday 19 Oct after the company warned lower-than-expected third-quarter sales, and two research analysts downgraded the stock.

Entry Points

2006-10-18T22:48:00.000-07:00

Sometimes I get “penny wise and pound foolish” in trade entry points. What I mean by that is that I sometimes spend a lot of time trying to get the very best fill on a trade entry, only to see the stock continue to move upward and leave us behind. This gives us the choice of chasing the stock (never a very good place to be as a trader) or leaving that trade behind and looking for something else.

The irony of trading is that the hard trades to enter are the ones you most want to get filled. Competition for sought-after shares from other traders who also think it is a good trade makes execution difficult at a desired limit price. Yet these are usually the stocks you want to own. If you instead think these leaders have run up too far, and start to pick less desirable stocks you hope will catch up, you are likely to be left with poor trades. The saying, 'If you lie down with the dogs, you get up with the fleas' is very true here. If you don't fight to get on board the leaders, and instead let the market pick your stocks, you get only the bad ones.

As a result, the most expensive trade for most of us is the trade never done. The impact of these missed trades can be expensive, and failure to execute these trades usually costs more than the squabbling over trying to get in at a specific limit price. If you don't track these trade that get away, you will believe you are doing a good job when you may be leaving a lot of opportunity on the table. One solution is to place market orders when you are concerned about missing out on a breakout situation. We usually discourage market orders, but a fast moving stock with a lot of volume can and sometimes should be the exception to that rule.

Bottom Line – Try to think about this another way. If you think you're saving 10 cents a trade by placing limit orders, if you miss just one five-point mover because of a limit set too tightly, then it will take 50 trades worth 10 cents of savings to make up for this trade not being done. Think about how you currently enter trades and evaluate whether you should make any modifications to help capture more of these types of trades.

Market Sentiment and flow of information

2006-10-18T00:05:00.000-07:00

Crowd psychology plays an important role in the development of market tops and bottoms. Generally, a market bottom forms when the vast majority of traders are extremely pessimistic, and a market top occurs when the vast majority of traders are ultimately bullish. The fear of the unknown can be one of the biggest obstacles and challenges that we as traders can experience in our day to day trading.

How does crowd psychology work? All financial markets like the stock market convey the predominant opinion of traders about the future direction of their financial securities. Simply put, traders buy because they are optimistic, and they sell because they are pessimistic. By and large, if everyone was optimistic about the stock market, then the market wouldn’t function properly, because the market would be lopsided with buyers and there would be a significant lack of sellers.

The opposite happens at significant market bottoms. As a market bottoms, traders begin to believe that stocks will continue to fall and not likely to reverse anytime soon. Such a high degree of pessimism sets the stage for buying opportunities as traders wait for a sign that the worst is behind them.

Thus, many traders are confused about market sentiment. Here is a general guideline for you to consider the next time you look at a particular market with the thought of which direction is it likely to move.
Positive sentiment amid positive price action is natural, embrace it.
Negative sentiment amid positive price action is a contrarian's play, buy it
Negative sentiment amid negative price action is natural, let it be
Positive sentiment amid negative price action is a contrarian's play, sell it

There are many places to turn to get the general market information and the flow often falls into the following phrases-

News from internet example Briefing.com to TV , newspaper and finally magazines like Fobers. If we can convert information from the so call Phrase 1 source like internet news and Phrase 2 to check these news to see if they are belong to one of the companies listed in the S&P 500 index, then we have a very good chance that we can profit ahead of the crowd .We can go to the US gov't and agencies website to check the news whether any governement projects are awarded to private companies that are listed in the S&P 500 index so that we can prepare ourselves if we want to play this companies in advance before the full news is release to the media & make known to the public.

CSX 3Q Profit Surges

2006-10-17T22:17:00.000-07:00

CSX Corp. said Tuesday its third-quarter profit doubled, aided by stronger volumes and pricing, as well as insurance recoveries related to Hurricane Katrina.

CSX earned 54 cents per share in the quarter, above the 51 cents Wall Street estimated.

Revenue balloned to $2.42 billion from $2.13 billion in the year-ago period, also above analysts' expectations of $2.37 billion.

Options Play-17 Oct

2006-10-16T19:18:00.000-07:00

The bull market is in rage, it is not going to stop going up. The Dow Jones industrials came close
to hitting a new intra-day high of 11,997.25 shortly after 3:30 p.m. ET on 16 Oct 06 and the Standard & Poor's 500 Index was up 3.4 points, 0.25%, to 1,369.

Some of the names I am watching for tonight earning plays for options are:
Parker-Hannifin CorpCorporation(PH) , CSX Corporation(CSX) and General Dynamics Corporation(GD).

Big industrials,which is a strong area right now are JLG Industries (JLG)
W.W. Grainger (GWW) and and Eaton (ETN) which on Monday said its third-quarter profit rose 25 percent due to strong sales in its fluid power and electrical segments. The company's stock jumped 7.47 % after the close of the market, so big industrials, seem to be a strong area right now and therefore I like Parker-Hannifin Corporation (PH) as it is also closely related to Industrial segment.

CSX Corporation(CSX) , railroad company is expected to get a boost from volume growth and to solid pricing increases from the last quarter.

General Dynamics (GD) is in aerospace/Defense industry benefited most from government increase military spending and news sources reported that their orders have outpaced deliveries, pushing back delivery dates for third-quarter orders into 2009.

Well, as a individual and self directed investor, I am always very excited during the earnings season beacuse the market present many opportunities that we can profit upon and let hope this time will also not be any exception.

Monday Feelings-16 Oct

2006-10-15T19:48:00.000-07:00

Earnings – The first big week of quarterly earnings reports started a bit shaky, with a disappointing report from Alcoa (AA), however,it got much better quickly as several companies in various sectors, including Costco (COST) and Pepico (PEP) reported earnings above expectations. Add to this a report from McDonald’s (MCD) that their third quarter earnings will come in above expectations, and the market made a big jump toward the end of the week. The reports so far also suggest that consumer-based companies will do well overall. The market tends to be very sensitive to what the consumer is doing, so a big quarter for those stocks will likely help bullish trends to continue. Next week will bring us a lot of the financial and technology reports. If the positive earnings also include those sectors, we could continue to rally. If these sectors have some major disappointments, we could trend back a bit. A bullish factor right now.

Economic Reports – There were only a few economic reports last week, but they supported the bullish case. New claims for unemployment were down from previous weeks and the U.S. budget deficit continued to drop. The September Retail Sales report was down, but that was actually good news, since the drop was mostly because of a drop in gasoline prices. This is also a bullish factor right now.

Energy prices – The price of crude oil continues to decline, which can be nothing else but bullish. Crude oil closed the week around $58.50, and the chart trend suggests that it will continue to move downward. This is also a bullish factor.

Interest Rates – Really a non-factor right now. The market does not expect the Federal Reserve to change interest rates one way or another for a while. Stability in this area is a plus for the bulls in the market.

Bottom Line – All the factors seem to continue to line up to the bulls in the market.

Earnings Season Begins

2006-10-12T19:02:00.000-07:00

Right now, there is a bull market in tech and it seem that it is not going to stop going up. People are selling the oil stocks and consumer staples.

So the question is that when money is out of a sector, it has to move somewhere.

The big names I am watching for earning plays are Motorola(MOT) ,Microsoft(MSFT), Google (GOOG), Qualcomm(QCOM) and Apple (AAPL).

Apple is having a more market share on iPod and Motorola has also gains some market share with lot of room to improve on their profit.

Google is a $420 stock that can go to $500 by year end, this is the Internet company has locked up a key demographic with its purchase of YouTube.com.

Mindset of Trading

2006-10-11T19:36:00.000-07:00

Here the 5 areas to share about the mindset and how to become a better trader and the articles below serve as a reminder to me just as important (maybe more important) than learning the technical indicators.

Develop Consistency - We should try to create a mindset of consistency by developing beliefs which support us in obtaining this result. In order to develop consistency, try to objectively identify your edges, defining the risk in each trade in advance, and accepting the risk to be able to exit a position when a defined loss level is realized.

Trading is a Probability Game - You can't be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you.Jumping.

In Too soon or getting In Too Late - These mistakes come from traders not having a well-defined plan of how they will enter the market. This positions the trader as a reactive trader instead of a proactive trader, which increases the level of emotion the trader will feel in reacting to market movements. A written plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.

Not taking profits on winners and letting winners turn to losers - Again this is a function of not having a properly thought-out plan. Entries are easy but exits are hard. You must have a plan for how you will exit the market, both on your winners and your losers. Then your job as a trader becomes to execute your plan precisely.

Great traders don't place their own expectations on to the market's behavior - Poor traders expect the market to give them something. When conditions change, a smart trader will recognize that, and take what the market gives.

The Secrets to Emotion Free Trading

2006-10-10T20:27:00.000-07:00

Among the 3 elements of mind, method and money management, mastering the mind is probably the most challenging task.

"A person with good self-discipline but a poor trading method will outperform a person with poor self-discipline but the best trading method currently available."

Traders Analysis -Genentech (DNA)

2006-10-10T18:49:00.000-07:00

Genentech shares fell 1.6% in after-hours trading Tuesday after the biotech company reported results for the third quarter. The company posted earnings of 55 cents per share on revenue of $2.38 billion. Genentech was expected to announce a profit of 50 cents per share on revenue of $2.31 billion, according to analysts surveyed by Thomson First Call. Investors appeared to be disappointed by the quarterly performance of key products Avastin and Rituxan, as sales for both cancer drugs missed Street expectations.

Traders Analysis

2006-10-09T08:25:00.000-07:00

Third-quarter earnings season officially kicks on Tuesday with Alcoa's (AA).

I am now looking at Genentech (DNA) which will announce their Q3 2006 earnings on
October 10, 2006 after market close.

Genentech has met expectations twice and beat expectations twice over the past four quarters. The current consensus estimate for third-quarter earnings of 46 cents is unchanged from 30 days ago, but one thing that caught my eye was the most recent consensus. The most recent consensus, which reflects the average of recently issued revisions, is 43 cents - three cents below the overall consensus estimate.

So with this I will probably go for an intermediate out of the money (OTM) call option where the strike price is above the actual stock price tommorrow. If the earnings fail to impress , then stock will likely to get slump and gap down , I will then convert the trade into a bear call spread immediately .

A Proper Plan of Attack

2006-10-08T19:24:00.000-07:00

When you first get introduced to the world of trading for the first time, you begin to hear catchy little phrases like: “Buy low, sell high” or “Don’t try to pick tops or bottoms” or “Plan your trades and trade your plan”…and so on. Obviously there is some truth to these truisms; otherwise we wouldn’t be constantly reminded of them.

In all probability you have heard the saying "if you fail to plan, you plan to fail." This couldn't be truer in the world of trading. None of us begin to trade with the intention of failing but that is just what we are doing if we aimlessly look for trades to put our money into without a proper plan of attack.

When we start a new trade, for most of us it begins when we hit the buy button on the order entry screen. In reality, a new trade really begins the night before when we set aside some quiet time free of the everyday stresses. It’s during this time that we review our current trades and plan for new ones. Planning our trades and writing them out can help make them easier to execute with discipline. If it's written out and in front of us every trading day, we are constantly reminded of why we got into the trade in the first place. If you’re just interested in playing the markets and not spending the time to plan your trades then you are setup to have a gambling mentality and your trading career will be very short-lived as you find yourself caught up in fear and greed making irrational trading decisions.

The first step in planning our trades is to devote some time each day.
It doesn't have to be a huge amount of time, but I suggest you to start with a 30 minute to an hour block of time. Everyone’s trading approach will be different and should be personalized to your own trading style.

Next I might want to start review some price charts.

Now that you have an understanding of the general direction for the markets, you might want to use some sort of scanning software to help you find trades that will work with the current market conditions.

Next, you want to look for strong trends or chart patterns that suggest a stock will move in the direction of the markets.

Now that you’ve found some stocks that look good for the next day, you’ll want to consider any type of recent news event that could affect the stock’s performance.

When evening approaches, it’s back to reviewing your trades and going through the hold process again. Do not forget to manage the trades you’re already in, spend a few minutes checking the charts of your current trades and adjusting the stops accordingly. Following a trading plan and sticking to it is really the only way to consistently profit from the markets. This nightly ritual or routine is extremely important for us to maintain our focus. If we trade strictly from our plan in a ritualistic way, any deviation will become uncomfortable or "unlucky."

Monday Feelings

2006-10-08T18:13:00.000-07:00

Key points:
1) The market can remain irrational longer than you can remain solvent.

2) No matter how high it goes, it can always go higher. No matter how low it goes, it can always go lower (look at a 10-year chart of MSTR)

3) Stick to your rules. We are trading, we are not buying Certificates of Deposit, so it requires a bit more emotional fortitude.

4)Diversify. As the charts become more bullish, consider some long trades or covered calls as money flows in force back into market seemingly in 4th Q.

5)Watch / listen to the Fed – if Bernanke does cut rates like he alluded to in his talk last week, we could in for a nice ride next year.

Stay Disciplined

What's about trendlines

2006-10-05T18:41:00.000-07:00

Rule: Price piercing through a trendline signals a trend change. In reality, the initial piercing of a trendline is only a warning of a possible trend change. In a study I saw recently, it was found that if you sold when the price first pierced the trendline, you would be selling too soon in nearly two out of three trades. This suggests that you should not rely on the trendline to be your only signal of a trend change, but as a first warning.

Rule: The more price touches a trendline has, the better the line is. When we define a touch as the closing price, this rule does generally hold up. One of the interesting things I have found is that the down sloping trendline tends to be stronger than an up sloping one.

Rule: Long trendlines perform better than short ones. This one just makes sense on the face of it. The longer the trend is in place, the better the stock performance is. The study I mentioned earlier suggests that trendlines that last more than about 140 days have about a 10% better return rate for the trader than shorter ones.

Rule: Shallow trendlines perform better than steep trendlines. This is a bit subjective because it deals with the perceived angle of the trendline. It is thought that a stock that is going up at a steep angle cannot continue that trend for as long as a stock that is having a steady, slow increase. In the study I have been citing, this rule was validated, with the shallow trending stocks averaging about 50% more increase over time than stocks with a steep uptrend angle.

Bottom Line – Today we touched on just a couple of aspects of trendlines. My best advice if you are new to trendlines is to read up as much as you can on them and then go out and start drawing your own lines. The best way to get good at them (as with anything else) is to keep doing then over and over. Trendlines can be a great tool to help set trading entrances and exits, so learn to use them. Good luck and good trading.

Monday Feelings

2006-10-01T19:26:00.000-07:00

First of all, September was not a typical market month. September tends to be one of the weakest months of the year for the market.

My personal opinion at this point is that the DOW will probably push to a new all-time high in the next few weeks.

It is once again earnings season and there have been very few earnings warnings during the last couple of weeks. Without the normal amount of earnings warnings, the market analysts are thinking that the current 14% increase in the S&P 500 earning estimates will hold.

Bottom Line – There is always a lot of volatility around earnings season, so I need to stay alert and trade with discipline.

Nov Spread Trade

2006-09-28T05:53:00.001-07:00

I am currently consider playing this Nov spread

OS Bear Call
Sell Nov 55.00 call
$1.05

Buy Nov 60.00 call
$0.45
Net credit $0.60 -13.64%

Technicals: The month of May is the last time that we really witnessed any strength in this stock. Since then, prices have more or less consolidated into a sideways trend much like its industry. The stock trades in the basic/iron & steel industry which is trending sideways to down. Recently, the stock broke out of a long forming Top Triangle. This chart pattern is considered to be a bearish signal as it indicates a possible reversal of the current uptrend to a new downtrend. Currently, the MACD’s are providing a sell signal while the Stochastics are yielding a buy.

So, you want to be an option trader?

2006-09-28T02:10:00.000-07:00

Came across this articles as follow:

So, you still want to be an option trader? Great. Thats encouraging. When you think about it, there arent a lot of people who follow through and are willing to make the effort to learn a skill let alone to learn it right. So many people are spoiled. They have little, if any, patience. We live in a society in which people want it NOW!! We have fast cars, fast food, and even Fast Times At Ridgemont High. People look for shortcuts everywhere, sacrificing quality for the sake of speed.Well, you can take shortcuts in learning about options, but I guarantee itll cost you. Its not One Minute Rice. It will take time and perseverance.

Well....

Thought of the day

2006-09-27T17:54:00.000-07:00

Business are like buses that come along , there are opportunities everyday.

This phrase seems to match to the stock market as there are big movement up or down everyday of the year . You do not need to beat yourselve up if you miss an opportunity as there are the next one that comes along , it depend on whether you can catch it and apply the right strategy and profit out of it.

Any comments on this one?

My Market Outlook

2006-09-25T07:30:00.000-07:00

Economic Reports – There were seem many traders out there looking for additional signs of economic weakness. The weakness that may appear in the housing sector which may flow thru to the rest of the economy.

Interest Rates – We had a Federal Open Market Committee (FOMC) announcement on interest rates last week, Other than watching to see if the FOMC made any new earth-shattering comments the market is not focused on interest rates right now. The rate hikes are in the past, and any change to lowering or starting to raise rates again is likely far in the future. This is currently a neutral factor.

Energy Prices – Other than the question of just how far down oil prices will go, this has ceased to be a major market concern.

Earnings – Not a big factor just yet, but looking forward to the following week, the market will be watching earnings reports to see if there are any signs of economic weakness. If earnings reports surprise to the upside, then the bulls could be out in full force.

Trading with no discipline-Part 2

2006-09-25T07:12:00.000-07:00

As I am writing now, oil futures dipped beneath $60 a barrel, Stock symbol DRQ gapped down from opening bell by $2.50 to $60 per share.

The only consolation is that I have only 1 postion on DRQ Bull Put Spread. Since the demage has been done , I will just monitor the postion and may hold it until the last Friday week of October and reverse the position entirely if there are no improvement on this stock.

Trading with no discipline

2006-09-24T18:10:00.000-07:00

A few days ago, I posted an article on developing a trading system just to remind myself of the lessons taught in there.

I did a Bull Put Spread on some oil drillers a week ago and price of crude oil wasn't doing great during those past few weeks as it dropped almost close to $60 per barrel and this directly affected many oil drillers stock. Eg -I did a Oct 65/70 bull put spread on ticker symbol DRQ and the stock price fall thru to $63 and I did nothing to save this trade which is losing at the moment and I hope that the stock price would recover.

The lesson here is that I did not have the discipline enough to follow thru my pre-determine exit like the above trade by buying back the $70 sold leg and hope that price of the stock would recover and this is in fact a mistake to be learnt as a trading system once adopted is to be follow through strictly.

Developing Your Trading System

2006-09-24T04:23:00.000-07:00

The real "secret" to making money in the market has to do with developing an edge in the market by using probabilities and proper money management. Unfortunately, people have trouble distinguishing between luck and skill when it comes to market predictions. We are unable to comprehend the many factors influencing an event as complex as the movement of a market. For example, if we had access to the number of buyers and sellers in the market at a given time plus information about the conviction and capital behind each trade, we would probably find the markets to be very predictable. Thus, any uncertainty you may have about how the market is going to behave at any given time is in you, not in the market. When you accept the fact that uncertainty is in you, rather than in the market, you will suddenly find you have much greater control over your own behavior towards the market. More importantly, you will have much greater control over the process of designing a trading system and greater understanding of how that trading system works.When you develop a trading system, you are essentially deciding upon a set of judgmental shortcuts to help you make a decision. Yet people are completely unaware of how we make most of our predictions and judgments, let alone any biases in the way we make them. Thus, the process of designing a trading system is replete with error and becomes a very difficult process. In order to simplify the process, traders need to understand the following major factors: randomness, sampling variability, and data reliability.Randomness. People want to treat the world as if they could predict and understand everything. As a result, one of the most significant biases people have is to seek patterns where none exist and to invent the existence of unjustified causal relationships. Traders don’t want to trade probabilities. They want consistency. For example, people fail to understand that a random sequence can include a long string or what would be called a trend. Instead, they try to understand the "trend" as something that it isn’t, instead of accepting that such phenomena occur.Understanding and trading well are not necessarily the same thing. People don’t understand randomness, yet they expect to be able to understand the market. They then build trading systems out of their attempts to understand the market by identifying unjustified causal relationships without ever realizing they are doing it. It is this expectation to understand markets that leads traders to search for "Holy Grail" trading systems that explain the "underlying order" of the markets. There is nothing wrong with building a trading system based on microcosmic glimpses into how the market might work; but you need to know what you’re doing when you’re doing it. You are not trying to understand some mysterious underlying order in the markets. You are developing a set of rules whose long term expectancy gives you an edge in the market, while allowing you to withstand the worst possible catastrophe that could occur in the short term.For example, many people observe a relationship in the market and assume it explains how the market works.Jack noticed when a particular pattern occurred in the market, it frequently moved 50 to 100 points higher. He assumed the pattern meant that strong hands were moving into the market. And, when the market didn’t follow the pattern, he became very confused. I said, "How often, when you observe this pattern, does the market move like that?" He responded, "About 35% of the time!" Thus, Jack had simply observed a pattern that was quite profitable 35% of the time. The rest of the time it had no meaning.A relationship may occur only 35% of the time, and that may be something you can make money with, but it has nothing to do with being right or trying to explain something. What you must learn is that most trading systems come out of observations that have a certain probability of being correct. Those observations do not explain anything. Remember, a trading system is just a set of rules to guide behavior, nothing less or nothing more. Apparent random fluctuations in the market are caused by many more factors than you can possibly monitor in your system.Develop the attitude of following rulesbecause they give you an edge in the market.Avoid the need to understand or explain the market.Because people attempt to understand and make order out of the market, they assume that the longer a trend continues, the more likely it will suddenly turn around. More importantly, traders are usually willing to bet larger amounts of money on that assumption. Thus, traders want to pick tops and bottoms in a trend—a behavior that tends to be as dangerous as stepping in front of a moving freight train, hoping it will stop and turn around just for you. These biases are usually referred to as the gambler’s fallacy. They have resulted in the ruin of millions of traders over the ages. The gambler’s fallacy is one of those biases, which make trading difficult without a system and proper money management. However, traders frequently develop counter-trend following systems because of this bias—usually with disastrous results.