CMC surpasses targets this morning

Today my CMC trade has passed the $15.00 target. The trade had called for a possible entry at $13.50 and $13.00 but the $13.00 mark never was hit.

That makes a nice 11.1% gain in about 3 weeks and change.

Now, I have not closed the trade myself yet as I let it run past the profit target, something I am apt to do if I am trading with a trend. I have placed a tight VTSO of 25 cents which puts me somewhere above $15.00 now. I will probably close the trade before the end of the day even if the VTSO is not activated.

The reversal trade for this is coming up for a short at $16.00... I need to double check that entry as I did not think that CMC was going to hit target so hard this morning... so I did not do the chart work to determine the short yet.

Jeff.

Slow month

This month has been rather slow, or maybe that is just me.

I am in 9 active trades right now, closed a loser and a winner... one closed I reversed the trade to go from a profitable short to enter a long immediately.

I gave some thought to only trading with the trend but found that the historical studies and long term trial period supported the idea of playing both sides of the trade under the majority of circumstances. While this does increase the risk a bit there are entry rules to skew the trades in favour of the "with the trend trades" that, while consistently applied, produce reasonable win rates.

Currently I am at a 75% win rate as I have closed 3 winning trades of four trades taken since starting the trading in my margin account last month. Although I obviously need more trades to make any stat relevant I still have all the back data to support 75% as an acceptable expectation for a win rate.

I just double checked and I am in 5 short and 4 long positions... which just goes to show how undecided the market seems to be... perhaps that is not really relevant as the prices on each stock with fluctuate as they will without too much input from the market overall.

Not much to talk about yet.

Jeff.

Free Time

I have not had this much free time in a while, at least as far as trading is concerned.

I have pared my hit list down to 14 stocks that are active, that means they would be traded the very next time that a setup occurs. I have 6 open positions (five of which are currently showing a paper profit) with 2 or three that I place orders on each day (shorts cannot be GTC, only day orders) and the rest I am actively tracking for the next entry possibility.

With all this free time I am getting other things done that I have been procrastinating on and, when I get free time from that I run another stock or two through my wringer to see how they would rank. Tonight I eliminated a possible tradeable due to some nasty volatility that would have me whipsawed out of trades far too often to be worth the bother. I am sure that it could make a very good candidate under one of my other trading plans but I am being very diligent in sticking to only one for the time being.

I do have another to be added once I finish my analysis of it. I know that I had about fifty from last year, and most worked out very well but they are outside of my criteria now and I need to replace a good chunk of them. I will feel comfortable once I get 20 active stocks in my own portfolio but I will continue to add to that number in order to be able to continue tracking and analyzing my trading plan over a wider selection of tradeable stocks.

All in all I am quite satisfied with things as they stand right now. Being able to run a new stock for suitability in about 45 minutes and end up with a ranking, profitability and next trade setup without having to agonize over charts, read accounting statements, financial reports and check for news events certainly is a nice way to trade.

Jeff.

Adding another pick to my hit list, PKI

The funny thing is that I don't even know the name of the company, the joys of pure technical trading as I don't need to know... although I usually end up finding out something about the companies that I trade along the way. I do enter them in a new feed and every month or so I see if anything interesting has happened.

I am in the process of ranking it against my other picks to see where it fits into my current list of active orders. Halloween sort of got in the way of me finishing though. I expect that it will easily end up near the top of my list that I will likely place an order for tomorrow and perhaps even bump another pick out for now.

I am finally getting around to formalizing my rules and guidelines in order to keep any ambiguity out of my trade decisions and management. It's nice to have a firm set of rules but even nicer when I can refer to them to remind me not to try to do something different... I am prone to trying to "tweak on the fly" and that, often as not, keeps me from sticking with a plan for long enough to make the money that it could have.

I plan to add another 6 or so stocks to my list by the end of the week.

Jeff.

CMC trade closed and the next opened

As noted in my Live Trades window the CMC trade closed Wednesday for $1 and $1.50 targets for the two trades which yields a 6.9% and 10% profit.

I have been involved in regular meetings this week so I was not as on the ball as I could have been with the re-entry into this stock. My entry target was $13.50 (long) and I could have gotten in the same day as the short profit target was tagged but I didn't do so until today.

No big deal... unlike the IRM trade that I missed for the sake of an hour, I find that most trade entries, and exits for that matter, have much longer windows of opportunity.

I re-entered CMC long adding the profits from the short trade to compound the trade size.

A brief note on the compounding effect.

Something that I overlooked when trading options, which was ultimately part of my reason for getting out of option trading for now, was the method used to compound returns based on profits. I won't go into the details other than to say that not doing it properly can easily blow up your account due to not being able to change position sizing in gradual increments.

With stocks, compounding will allow gradual increases in absolute risk following every profitable trade and an easy method to downsize trades in order to minimize risk following a loss.

I'll put up some numbers in my next post.

Jeff.

ROI Optimization... Ignoring Time Lines.

Perhaps my post should have been titled, Near Miss with IRM as this was entered on Monday right shortly after missing the $23.00 high in IRM that day, I just forgot to actually post it:

Today I dropped a stock off of my hit list (CLI) due to it's price being higher than my optimum stock price and added one (IRM) that, had I been one hour earlier I would have gotten into a trade.

Actually I would have been in a nice reversal trade on that one as it hit the previous long position target and the next short trade entry this morning.

Due to my fixed target sizes ($1.50 for less than $20 stocks and $3 for over $20) the optimum trade size is a $20 stock for a long entry and $23 for a short entry. This produces an ROI of 15% and 13% respectively.

A $15 stock can produce a 10% ROI which lowers as the price approaches $20. Anything higher than $23 the ROI just heads down as at $30 it is 10% as well. I figure anything with a 10% or better ROI is fine right now.

A side note on this is that while the stock may be at that sweet spot it will not stay there. The idea here is not to just trade at the $20-$23 all the time but to use compounding in order to grow the position size as the price moves away from that ideal price. Starting out with a higher ROI just gets it moving a little quicker.

Ultimately it is all about the cash-flow more than the ongoing per trade ROI.

Starting with a $1,000 position size and making trades that gain 10% to 15% per trade it adds up.

I mentioned my relative ranking system before so I won't get into details now but the new addition is tied for top spot at 21. I heavily weighted the price factor to favour anything north of $20 decreasing as the price increases to $30 yielding a zero for the last price ranking.

The followup is that I missed a really nice entry on that particular stock at that particular time as evidenced by the chart following:

Note the peak on Monday, probably about an hour before I entered my order firm at $23.00. On Tuesday I considered getting in in the mid $22.95's but decided to hold tight, hindsight.

The previous long entry that I mentioned in my post was at $20 to sell at $23 and short immediately at $23. Had I been long I might have missed the short due to the fast peak as I cannot place a short order while holding a long position without having two separate trading accounts (next year I will do that with longs in the TFSA)

Jeff.

A Comparison of Long vs Short Trades... Time Line

I always considered a short sell trade to be the faster moving trade due to prices dropping faster than they typically rise. While that may be true I did some comparisons between long and short trades for my sample of stocks and trades since June 2009.

For 21 stocks that I compared over the course of 434 trades completed there were 268 long trades and 166 short trades.

So I traded about 62% of the trades long.

Then I compared how much time I spent in the trades. I expected that I had spent near 70% of my trade time in the long trades, figuring that they are slower moving and there were more of them than shorts. I was surprised by the results.

I spent only 54% of my time in long trades.

I might suspect that the discrepancy may be due to varied targets, except that a short and long profit target are the same for trades in the same stock when the price is relatively the same.

Well, apparently this throws my assumptions about long vs short trade time frames out the window or perhaps the particular patterns and stats that I look for in my picks are more prone to slower moving down moves.

Jeff.

Leaving money on the table... the prudent plan.

I posted my $3 profit (out at $29.00) on PLCM (Polycom Inc.) on Oct 18th.

Today PLCM jumps to touch $34 off the start due to a good earnings report and an upgrade from Wells Fargo.

While I considered holding it through and trailing a stop last week I chose to stick to the target. Sure, today I may mildly regret my decision, but that can be the nature of hindsight. Taking the profit when the target is reached is always the better choice in my current trading plan even if just to keep a level of consistency about the whole objective approach to the trading.

Besides, the stock price slumped a bit after the good report after hours and only jumped following the upgrade... what if the analyst decided to not upgrade or to even downgrade the stock? I'd be left holding a position in limbo... that is where the trouble begins as indecision can be a profit sucker very quickly.

In future, once my position sizing is larger, I may consider scaling out of trades differently. In this case I only had one trade in so there was nothing to scale with. Even had I had two I would not have tried to hold for a run. Seeing the activity this morning I would have sold off fairly quickly at anything over $33.00.

I did have a possible counter trend play to short this stock today at $31.00 but decided against it after seeing the price action... I only noted the reporting and upgrade after cancelling my order and this serves to show that following what the price says no matter the news is always the better option.

Basically, the price hit my stop for the short entry trigger pre-market which automatically negates my trade idea. This is not a subjective decision.

Jeff.

PLCM profits $3.00 per share

Today I resisted the urge to alter my exit target on my PLCM position.

The setup and the execution:

- Buy at $26.00 (October 4th)

- Stop at $23.00

- Exit target $29.00

- Profit target $3.00 (October 18th)

Result = 11.5% gains in 14 days or 0.82% per day

I still check the daily ROI as my goal is still to hit 1% per day overall. If I wanted to spin the numbers a bit I could use trading days and count this as 1.15%... but calendar days are easier overall.

I watched at the open of market as the price brushed $28.93 and thought that I should cancel my limit order and look at changing it to a following stop once the price passes $29.00, perhaps just set it at $29 to start or see where it goes and set a VTSO for 25 cents or so. While I could have captured more, it did hit the $29.70's, I got busy and didn't look at it until after my limit order had executed.

Now the price is back below $29.00 anyway.

I would rather not have to feel like I need to watch the charts during the day to try to capture these sorts of moves so sticking to my rules and therefore the limits is the plan.

I would have considered leaving exit orders off of some trades in future and leaving winners run but the history on the trades indicates that I am still better in the long run to cut at my initial target. In some cases even lowering my target is prudent depending upon the price activity during the course of the trade.

It all boils down to both trading within the plan, obviously, but also not fighting against a tried and successful plan. This amounts to the tweaking that I am prone to perform once I get to the tried and tested stage which, as often as not, turns a plan with a definite edge into a marginal nightmare to manage.

Over complication does not make for a better trading system.

Over complication is just another side effect of greed.

Jeff.

Pretty Boring Stuff

Whoa! I haven't posted anything for a week... that's odd. I have been busy at work and getting all sorts of odd jobs and other procrastinated projects moving along now that I am not day trading and have lots of leftover time.

I now have 6 active positions and a few other orders in place now, so it's not like I have not been trading... just my tading is taking FAR less of my time that it previously was.

I have 20 stocks that I have worked up all my stats for from the last year's data and now I am just merging my current trades into the same rules based trade setups.

Actually, now that I think about it, it's not really that odd that there is not as much to write about. Sure I could go on about the trades, but just buying or shorting a few positions doesn't make for great reading. Due to my methodology there isn't much excitement either.

Trading goes something like this:

Choose a stock that is ranked high enough to consider.

The setup is to buy at $25 and again at $24... two entries perhaps.

Orders placed pre-market

Other in play positions checked, confirm that all stop or profit orders are in place correctly.

Re-enter any short orders to open positions (they are only good as day orders).

Check later in the day to see if they filled... although I like to watch the open.

Set stops for new positions.

Place profit limit orders where needed.

Twiddle thumbs, perform other work...

You get the idea. Pretty easy trading.

Of course the getting to this stage has taken a lot of time and effort and still takes more behind the scenes work. I will need to pare some stocks that are under performers or have gotten over priced and find replacements.

All in all, pretty boring stuff now.

Jeff.

Weekends and Websites

As much as I like trading I like the downtime as nothing can happen over a weekend other than activities that I may choose to do with regards to trading. In fact my current trading strategy has me doing a lot more relaxing when it comes to trading in general.

A bit of research, choosing trades for the next week, deciding on trade sizing, maybe running a few more numbers through the wringer.

I am putting some material together for a website now. I have done a few blogs to play around, this one is the only one that I really stuck with regularly, and I am finding it a different animal to get going. Blogs are easy, websites take more care and attention.

I guess a blog is sort of an informal medium while the website idea seems to be more intentional and formal... this just takes more time and is not to be done in half measures.

When I get it going I'll post a link for any that really want to follow along with my trades directly and not just read about the results.

Jeff.

Daytrading lament... or not?

Today I stayed at home and actually slept in... sort of.

After the kids got away to school and things settled down I did some thinking about the last few weeks without day trading, or, more accurately, without HAVING to trade the morning away. These days have been far more relaxed and less stressful.

As much as I enjoyed the trading while it was in progress I now realize that it was not really what I was looking for in my trading. Someday I may pick it back up or I might jump in for a day or two here and there but for now my current trading plan seems to be a much better fit... and seeing as it is all based solely on my ideas and strategies it is far more satisfying.

I have all my trade data from the stocks from over the last 16 months and change and the easiest thing to do is to continue with those studies while inserting my cash as the next trades come up. This makes a seamless move from study to reality and allows my mind to rest easy knowing that the statistical values will carry me through very nicely as nothing has really changed.

I am into three trades right now, as I already posted, and I am looking forward to more this week.

The plan is to have 20 stocks on my active hit list to start. Of those twenty I anticipate being in 1.5 trades per stock at any given time. That is from the 16 months worth of trade studies under my belt with my first batch of stats (I broke them up to make the number crunching easier and faster). Of course there would be times when that number might be a little low or a little high, it is an average after all. Oh, that includes first entries (67%) second entries (22%) and third entries (11%) into the same trade as the case may be depending upon the setup.

I ran the numbers based on only entering the first trades and found that, due to compounding, it was far more beneficial to plan to enter all trades as they setup. In fact, it almost doubled the profit potential of the account overall.

Well, that's all I have time to write right now.

Jeff.

CMC live stock trade and odd comments

I have been busy with all sorts of projects lately, not the least of which is getting my trading strategy tweaked and making sure that I am positioned where I want to be. It would certainly be a lot easier if I were just following someone else's plan... but wait.... I tried that already and none worked.

So, I have some new trades on the go and they are looking, well, traded. One took off out of the gate for me, which was nice. $1.50 in the first 30 minutes of trading after getting in on the first target price ($26.00) yesterday and seeing it drop by 50 cents ($25.50ish) into the close. Although it dropped that much I was allowing it $3 of room to drop right down to $23.00. Perhaps this will be a shorter than average trade... I always like those.

For my live trade that is posted, CMC, I am in for an average of $14.76. Actually it is only one position so it is hardly an average. I didn't manage to get in at $15 for the second entry (busy) so I figured getting halfway between first and second entry pricing was good enough. It sits at $14.86 right now.

I posted the stop for CMC at $16.00 but I am not overly fond of even dollar stops as they seem to get "just touched" before the price reverses often enough that, at this price level, I will change it to $16.15 or $16.20.

Stock ranking based on performance

I have been mulling over how to decide which stocks to place trades on when the setups appear. With up to 50 to choose from in the potential portfolio I could just make every single trade that sets up ... but that would take a lot of cash to effectively pull off. Seeing as I am aiming this plan at a smaller account that is just not going to work.

So I went to work with my spreadsheets to come up with a simple ranking system to tell me which stocks to consider as first to trade. This is not so much a go-no go ranking but more a relative performance in order to always have money going into the top performers first.

I have toyed around with a similar system using another trade determination method but the loss allowances were too large even though, in the long run, the system worked. It was aimed at capturing large moves and taking more smaller losses. Basically the win rate was low enough to cause concern and would be tough for a small account to weather the potential draw downs.

For this system I figured I could do this using five stats and value them as 1-5 and add them up to come up with a 1-25 valuation. Choosing the stats was not difficult but getting the correlation between the individual numbers and the overall performance had my mind reeling initially. It took sleeping on it and just putting pencil to paper to come up with a simple solution.

I ended up picking four stats and weighting two of them 150% to still come up with a 25 point scale....more or less. As these are relative the absolute number is not as important as the inter-relationship between the various stocks.

Last Price

Pretty obvious what this one is, the lower the price the more shares can be purchased per trade so the greater the absolute gains. I reverse graduated this one as the range is from $50 to $15 and gave it an additional 50% weighting as the lower the price the higher the gains...although under $20 is not as good as just over $20 as the targets get smaller in order to get the moves to still hit the targets. This makes this ranking almost absolute, just drop anything over $50 and trade sparingly anything under $20.

Win Rate

This was an overall win rate based on all the trades taken. I figured that the ideal range was between 60% and 100%. The range was converted to a 1-5 value and I added a 50% weighting to this one as well as it is also a pretty important factor. For really small accounts I could take only the first trade rate as that is the rate for only taking the one position per stock rather than sometimes taking two or three. The second and third win rates, taken on their own, are close enough to the first rate to not make a big difference in this... although I may run it again using those numbers just to be sure.

Annualized Return On Investment (ROI)

Seeing as I have well over a year's worth of data (16 months) this is not an extrapolation to annualized numbers, it's actually reversing the process.

I don't consider this to be as large a deciding factor as the first two stats as anything that is positive is good so I would just rank the level of "goodness". The exception is that a huge winner will automatically get a higher ranking as the scale here is open ended. I used 60% to 340% as the range to work with as ideal. The highest in my first group of stock is 430% but that stock is now priced too high to use this method on, even though it would work well it is producing far too many trades to stay on top of without daytrading it... which has some interesting possibilities for some other time.

Average length of trade

I figured that a reverse graduation from 40-1 days was in order here. Even weighting with anything over 40 getting a fat zero. Like the ROI this is not as important as the other two factors but the lower the average here the quicker the trades are turned around. Once the price starts getting out of range the trade volume usually picks up so if it started out in the $20 range and was followed up while making good money there is no reason to drop it until the other stats drop off as well. But for the purposes of starting out, this ranking will work out well.

Of my stocks that I have run through the ranking sheet CMC came up with the highest valuation at 18.83 while DE was the lowest at 2.33. I figure that I can start by just trading the top few to start and work my way farther down the list as the account grows. None of the stocks are losers so that is of little concern, in fact it serves to diversify the holdings by adding more trades to the table. With an overall performance of an over 80% win rate I can hardly go wrong, just perhaps not hit as high ROIs in some cases.

Jeff.

Stock trade DE, loss taking and profit making

Seeing as I posted a last winning trade for CVA I figure it only fair to post one that had a losing trade as the last trade... or two.

DE, Deere & Co.

The last trade closed on September 17, 2010 for a $3.00 loss, it was a short sell.

The next to last trade closed on Jul 23, 2010 also for a $3.00 loss and also a short sell.

In both of these cases I may not have taken the trades due to the established up trend but, in the interest of consistency I logged them according to the rules rather than muddying the plan. To be honest I have been considering dropping any shorts against the trends but even some of those have been very good trades. I mitigate the risk by only entering one position and I raise the entry by a dollar at least. This also raises the target considering that the following drop may not be quite as far.

STATS for DE:

24 first entry trades, 17 winners
5 second entry trades, 4 winners

1 third entry trade, 1 winner

$41.00 per share gains (using 100 share trades that is $4,100 for the period from June1, 2009)
Total days in any trade 169 of 483 possible.

I ran the trades at $1,000 per trade initially and rolled the profits right back into the next trade to provide compounding returns. Allowing for the commission structure at Questrade of $4.95 per trade (I just rounded up to $5 for ease of math) the $1,000 would now be $1,717

That is a 71.7% net profit. Like CVA, while consistent, it is well below the average.

Having said that, had I just bought and held the stock on June 1, 2009 at the average daily price of $44.65 it would be at $71.49 now. The gain of $26.84 represents an 60.0% profit. Also, this drive to higher prices is what lead to more losers... 6 of the 7 losing trades were shorts, and one break even of a total of 30 trades. That is still a 73.3% win average even at that.

It is worth noting that I have one stock with a win rate as low as 64% and the ROI is still 35%. I think that is respectable.

Jeff.

CVA, recent profits in this stock trade

One of my recent trade targets hit was in CVA, Covanta Holding Corp.

I had targeted entries at $14.00 and $13.50 to open long positions which were both hit on Aug 12th. A double position. I know I could have watched the intraday and had a better average entry but that is not the point with my trading plan.

Keeping it simple and to not be required to do any chart watching during the day is my goal. I have done a lot of daytrading and the like and, while it can be lucrative, it can be stressful as well.

Exit profit targets were at $15.00 and $15.50.

The first was hit in a few days for the $1.50 per share goal.... 11.1% in 5 days, nice but trades this short are not not always typical, although there were a number that were less than 10 days. I like those for obvious reasons.

The second target was hit on September 24th with an intraday high of $15.52. Another $1.50 profit and 10.7% gains.

The entire trade lasted 43 days.

Over the entire study period this stock was not a great performer using my plan but it was consistent, and that is the primary goal. More consistent stocks over the longer term leads to more relaxed and profitable trading.

STATS for CVA:

9 first entry trades 8 winners

2 second entry trades 2 winners

$12.50 per share gains (using 100 share trades that is $1250 for the period from June1, 2009)

Total days in any trade 325 of 483 possible

I ran the trades at $1,000 per trade initially and rolled the profits right back into the next trade to provide compounding returns. Allowing for the commission structure at Questrade of $4.95 per trade (I just rounded up to $5 for ease of math) the $1,000 would now be $1,931.

That is a 93% net profit. While consistent, it is well below the average.

Having said that, had I just bought and held the stock on June 1, 2009 at the average daily price of $14.24 it would be at $15.41 now. The gain of $1.17 represents an 8.2% profit.

Jeff.

COG and the resource stocks... Oil specifically

While plowing through some numbers I was reminded of an old rule I used to observe while coming up with trade ideas.

Do not trade commodity related stocks... or at least ones that are directly tied to some of the volatile commodities. Oil and gas were on the top of the list.

This was driven home as I reviewed the trades for COG, Cabot Oil and Gas Corp.

The profit and loss was barely above break even after 12 months and the winning trade rate was under 60% while my overall average is over 80%. I glanced at the rest of the year to date and saw some very obvious whipsaw chart action. Normally I like that sort of activity but the stock is just of a high enough price and the volatility is also just high enough to compound the effect of knocking me out of more trades.

Actually, I should have discounted this one just from glancing at the chart last year while I was selecting stocks to trade as the volatility and pattern obviously were outside of my parameters. Waste of time.

Keep in mind that all I would have to do in order to trade this stock is to widen the stop losses and hold out for better entry prices... but that means having two trading plans and that is not in the plan right now.

Jeff.

CMC Live Trade Update

I was looking over my charts today and realized that I need to adjust the exit target for CMC. The second exit target needed to be lowered by $0.50 to $13.50 due to my shift in profit targeting but, more importantly, the primary entry needs to be raised to $13. 50 due to the next trade setup.

I already posted the first change in the Live Trade column so I will update the latest exit and post the next trade setup.

Next trade entry will be:

Entry 1 - $13.50 Target - $15.00

Entry 2 - $13.00 Target - $14.50

Entry 3 - $12.50 Target - $14.00

Full Stop at $12.00

The exit targets may shift depending upon how low the next move goes... if it only fills one or two of the trades then the exit may shift down a bit on the first trade in order to secure profits. and to set the next short trade if it sets up as well.

Jeff.

Putting the trade in context, CMC

I have more history on CMC other than just the trade setup that I posted, I have the whole year and change so I thought I should put the stock and activity into context relative to the current open trade.

A quick note about the changing profit targets. While I had to go back to the charts to see how the target limit orders would have filled it was based on the trades that were dictated already. I do wish that I had actually placed on thee trades and made some real cash... too busy with other plans. The primary entries would not change and most of the second and third would not either but I wanted to check the executions. Seeing as in any case where the primary hit full target the 2nd and 3rd would, necessarily, have also hit their targets as they would have been at lower prices.

CMC- Commercial Metals Co.

40 Trades since June 2009 (these are divided between 1st, 2nd and 3rd entry targets)

First Entry = 19 74% hit profit target

Second Entry = 16 81% of these hit their profit target

Third Entry = 5 80% of these hit their profit target

Not every target is a full target as there are some that the targets are set tighter on due to the next entry being so close, playing the short term moves in both directions can do that. Basically, one exit for a long position is at the same price as the next short entry price so the trade essentially flips. The key is in selecting valid targets.

I plug in a trade value of $1,000 and consider that the trades are all simple with no compounding therefore the trade value of $1,000 is always the same.

Total Profits = $1,781.00

Then using a starting trade value of $1,000 and compounding the profits into the very next trade.

Total Profits = $ 4,885.50

Unlike other speculative and subjective back testing these are firm numbers, now they are adjusted for my commission structure with Questrade so figure in 40 round trades worth if yours are higher. I used $5 commissions or $10 for the trade in and out. It's actually $4.95 for up to 495 shares.

Also worth noting, if I were actually in the trades and was putting money on the line every time I would be able to get better entries and exits in many of the cases but I am using my firm rules based system for both entry and exit for the sake of objective consistency.

Jeff.

New targets for stocks under $20

In my data analysis I have found an interesting bit of information having to do with entry prices and profit targets specifically for stocks priced under $20.

I had posted entries for CMC at $14.50 and $15.00 as a short sell and posted the targets as $13.00 and $14.00 respectively creating a $1 and $1.50 gain. I will be changing that.

Basically any trade will have three possible entries for stocks under $20:

Considering a long trade rather than the CMC short above for demonstration purposes:

(BTW CMC scooted back above the $14.50 first entry target today.)

Entry 1 - $17.00 Profit target - $18.50 Gain - $1.50

Entry 2 - $16.50 Profit target - $17.50 Gain - $1.00

Entry 3 - $16.00 Profit target - $16.50 Gain - $0.50

Full stop at $15.50 without extenuating circumstances

A full trade hitting the targets would gain and average of$1 per share overall.

A full stop will lose and average $1 overall.

If each entry were 100 shares that would be a $300 gain or a $300 loss.

In crunching the numbers for the trades I have so far found that over 75% (this is not an average, this is the minimum taken from the poorest performing stock) of the first entries hit their target profit of $1.50. It led me to wonder why I should limit the second entry to a $1 profit when, 75% to 92% of the time the larger profit gets hit which means that the lower profit also gets hit on the way past. In fact it will hit between 86% and 100% of the time. The same goes for the 3rd entry although if the third entry gets hit the average of the first getting hit afterwards is between 72% and 80%.

It is worth noting that no matter the entry the Maximum Loss Allowance will always be the same. Therefore it would be prudent to increase the profit potential, given the odds of success, in order to skew the trades in favour of better gains for capital risked.

In that vein I left the entries alone and changed the exits to allow a full $1.50 for each trade entered. This results in an average $1.50 overall compared to the average $1.00 overall.

For the same entry of three trades at 100 shares that would be a $450 gain or the same $300 loss.

I like a profit / loss ratio of better than 1:1 and this at least makes it 1.5:1. Add that to an over 72% win rate for just these larger trades and that really adds up fast.

Jeff.

First live trigger, CMC short

CMC, Commercial Metals Company

Of course the first live trigger that I post is a short sell, and it also was hit last Monday... which makes this "not so live" but still active. This one has been a solid short five times this year alone. Now the price being around the $15 mark makes it a smaller per share target but every profit is a profit.

The setup had been for an entry to sell to open at $14.50 and a second position at $15.00. Both orders were filled.

Profit targets are $13.00 for position one and $14.00 for position two giving $1.50 and $1.00 per share respectively.

Stops to be set at $16.00 for both positions.

Assuming that the targets are hit and based on the average entry price of $14.75 and the average exit price of $13.50 the ROI would be 8.5%

Loss would also be 8.5% for a profit loss ratio of 1:1.

This one is still active and orders may yet be filled for $14.50 today. I would set the stop at $15.75 at this point.

Jeff.

Throwing in the towel and going live

Well, I've decided to close down the day trading subscription. Between waffling on the moderators part with a variety of formats and changes to try to appease the large numbers in the room it has been watered down to a point of no return. I will finish out the week as there are a few trades that we are holding that I do not think will work out, but I will not treat them as total losses until expiration on Friday.

Throwing in the towel, figuratively speaking.

Next up is a new beginning with an old plan.

I have decided, after a long bout of testing other services and having them fall flat on their promises, that I can do much better. In that vein I will be starting my own service in the next short while to provide email alert based trades with website reference backup.

This will be nothing fancy, just straight up trades with clean and clear entry, targets and stops and perhaps two or three ways to play a trade depending on the setup.

I have tried a number of self made plans and have seen some great potentials and had a few go flat over the past while. So rather than get into forecasts and future gains and what not, I decided to grab five, more or less random stocks out of about 50 that I had selected over a year ago to run trades on. With all the data that I have it does not take too much to figure out the profit and loss with a sliding account sizing scale.

Stock trades logged thus far for ABB, ABX, AEO, CAH and GDX. I started just going alphabetical then bumped up a bit, the point being I did not select these for any performance reasons. Out of the total of about 45 trades total over the last 15 months, depending upon using an aggressive or more conservative approach to the strategy, the returns are very nice... no not spectacular, or explosive ... nice and regular.

A cash only account gain was between 70% and 100% depending upon the aggressiveness chosen and between 210% and 290% using 1/3rd the cash in a 3 times margin account to end up with the same buying power.

Now that is only with 5 stocks and thus only having 5 concurrent trades but using full capital in those five trades... not necessarily the absolute best plan. I'll setup a better gauge later and add in the rest of the trades into the mix.

Anyhow... off to bed now and I will post more details later.

Jeff.

Lulled into over confidence?

This week has been a good week for day trading, a little slow but that just leads to more careful trades even if they are not big movers. We were going to play SPY puts today, too bad that we didn't but we got into three other trades that were decent. Today actually was double my last four days, that makes it a good day... or more to the point, the rest of the week a small week.

Having said that the week has seen nothing but winning trades. A couple were close enough that the commissions put them a dollar or two into the red but I don't really count the commissions when judging a trade a winner or loser until the final daily and monthly tally.

Today my extra cash hit my trading account. Now it is going to remain in Canadian dollars as it is only a buffer and I really don't expect to need to use it but I do count it into the base cash to work with when running my trade size calculations. I anticipate withdrawing it in the near future so converting it is just incurring additional fees for nothing...cheaper to borrow USD against it in the remote chance that I need it for an active trade. This lets me pull trade sizes up to the $700. I mentioned the rest of the week being smaller, it was not so much due to smaller profit trades, although that was a factor, it was due to starting out with $333 trades. I miscalculated my trade sizing due to an old factor I had in one of my formulae to aim at keeping trades as a smaller percentage of my account once it got going. I didn't follow it as well as I ought to have.

$333 is almost too small to day trade options with as a 10-15% profit on the trade is only $30-$50 while commissions start at $15.40 for a single contract. Workable, but really tight. I like $700 as a minimum trade size then factor it up from there.

Seeing as one of my issues was getting trade sizing too big too fast in addition to those trades being held too long as swings I will be keeping them at $700 for a bit in order to not get too top heavy in the next batch of trades next week. I also expect that we will be placing more trades starting next week so now I want to have more trades possible to take advantage of every single trade called out.

Perhaps I should only review trade sizing each week rather than each day. That would avoid using recent profits in the new trades which might only serve to increase a loss on the next trade. Either that or keep doing it daily but increment the trade size increases. Say there is a good $500 day spread that out to the next 5 days in trade increases. That way I would gradually increase profits but also more gradually increase risk. I did far too much bouncing around with trade sizing in the past.

Hmmm.... best idea I think is to treat profits in a delayed manner. This week will be tallied up and only added to the trades in the week after next and even then roll them in incrementally while continuing to keep a percentage out of the trades in order to preserve cash in the case of a drawdown... which should be far less onerous than the last two. This serves to keep my over confidence in check as I do not just plunk winnings into the next trade and risk squandering them.

Jeff.

Day trading comforts.

I finished the day without even giving what the market did after noon a second thought, in fact it never even got a first thought.

It is nice to be in and out of all trades in the morning and not be concerned in the least with what else is going on meanwhile.

Nice.

Jeff.

Another fresh start?

When I started my daytrading I started with around $6700 in an account and I almost doubled that in 2 months using a few ideas about money management that were more than a little off. Basically I may have lucked out in that those two months were very good months as a lot of the trades were winners and a lot were largish winners at that, I recall one that was over $3.00 per contract, that was a very good day.

Average trade per contract profits have been declining after a nice bump in May. These numbers reflect losing trades as well.

April = $0.20

May = $ 0.33

June = $ 0.11

July = $ 0.10

August = $ 0.06

This causes me some concern as my break even on some trades is as high as 8 cents on a small 2 contract trade... having said that a 2 contract trade is usually a more expensive price like $3.40 trade today. On this sort of trade even a 10% gain is 34cents so it is not as bad as it sounds. A 50 cent trade would be maybe 15 contracts and the breakeven would be 2.4 cents.

The long and short is that money management is more critical when trading smaller average gains as a large loss will wipe out profits that might take many trades to overcome instead of just a few. Of about 38 trades this month there have been 10 losers which is a 73% win rate, not bad.

April = 75.6%

May = 78%

June = 85.9%

July = 78..8%

August = 73%

This goes to show me that a large win rate is not the only thing needed to stay ahead of the game in trading. If I were running my own trades I would have stopped out of more than a few of the losers to keep losses from getting ahead of me as most of the larger losing trades, if not all of them, had to do with swing trading a day trade.

Seeing as we are not currently swing trading anything and will likely be advised prior to a trade being entered that it will be a swing I feel confident that I can manage those trades better. If we do enter a swing I have some rules to look after stop losses and complete exits. I figure that, seeing as the swings were the biggest losers, even if some of them won big as well, they are best to not enter at all, generally speaking, or at least entering with a smaller profit target and stop loss assigned.

Jeff.

At the mercy of the service

AKA scourge of the lowest common denominator.

Today we took two trades, AAPL and NFLX. We held the puts for about 10 or 15 minutes and sold them for a small 10% gain. This was rather than hold them beyond the scope of the morning trade time...although even had we held them for another 20 minutes the returns would be at least doubled.

The idea was that seeing as most people did not observe proper money management John felt that it best if we got out of trades very fast and definitely not hold them overnight. I expect to see some similar trades over the rest of the week. While I don't mind them I dislike trades being closed prematurely.

I think he was just trying to make a point.

One trade we got into at $2.30 (AAPL), and the other at $3.30 (NFLX). Both were closed for about 20 cent gains. Both went on to hit $3.95 and $4.40 by 1030h respectively. That was $1.65 and $1.10. By days end, had we just closed the trades near the end of day, which would be my idea instead of holding them, the prices were at $5.60 and $4.40. Those are some really nice gains. Seeing as it was mentioned that the trades were being closed due to his lack of faith in subscriber's money management skills that should have been a hint to hold the trades open for longer on our own... that was mentioned after the fact though.

Due to my small trading size my profits were $60. Better than a loss, I'll admit, but no great day.

Tomorrow everyone will whine that we should have held... John knows that. I am sure that he expects that.

What really sucks is one of the trades that expired on Friday was AAPL. We had puts on the $240 strike and today it plummets to hit $245. Go figure.

Jeff.

Next to final analysis

In going over all of my trading since starting with the daytrading options in March I have come to a conclusion that explains my entire problem with this rather huge draw down.

Over confidence mixed with a little greed.

My posts outline my plan and therefore my problem in that I kept trying to increase my position sizing in a maximum profit plan... which is a maximum risk scenario as it turns out. I failed to recognize this important fact and I was considering potential profits mixed in with my current trading. Mixing the future with the present is not prudent in trading as the future is really only speculation.

Seeing as I was doing so well I projected my success into the future and failed to take into account projected losing trades as I increased my position sizing according to potential profits. I should have (always the should haves) optimized according to a smaller trading capital and left a larger buffer so that, in the case where a bunch of swing trades went south at once, I would be able to continue with my trading at the exact same size as I had all along. This would have served to mitigate the losses as we have booked enough wins that I would have more than made up for the losses.

Also, had I known ahead of time that the swings were going to be swings (for the held daytrades anyway) I would not have loaded up on them as I did knowing that we may be recommended to add to them. So my plan could have been to close all but a small portion of the position once it was determined that we were going to hold them thus realizing a small loss on that portion while allowing the balance to run in case it worked out. Either that or just set a GTC stop loss on the whole thing at 20-30%.

Playing a lot smaller would have reduced my profits on the winners while reducing my losses on the losers and stopping out of swings for a smaller loss would stop the 100% large losers altogether. I could have stayed larger with the daytrades and only managed the swings as mentioned above as my daytrades are closed each day and with the win rate I would be MUCH farther ahead.

Now I have no choice but play smaller as a result of my blunders.

Having said that I made a swing trade of one contract two days ago that I just closed for $201 profit. Next Week we will be playing mostly SPY options and the like, lots of liquidity so many traders cannot affect the prices to the detriment of the rest of the group... too many rogue traders right now to worry about with thinly traded options. That suites me just fine as it was a suggestion of mine to play these each day anyway.

Jeff.

Curse those swings!

I've been busy lately so not much posting. Trading is poking along, summer doldrums as there is very little volume which ends up equating to very little to really sink our teeth into for day trading.

Sitting on these swing trades, which are really just failed day trades, is very annoying and very expensive. I do not plan on continuing to hold those types of trades going forward. I haven't done it yet but I am going to rework my spreadsheets to estimate the difference in profits between holding these trades through or exiting by the end of the morning session.

The trouble right now is that I have sunk too much cash into these trades and I am down a ton, should they all not work out now I will be wittled down to a very small trading capital. In that case I will need to really reconsider my trading in future.

Perhaps not closing out the entire trade but closing half of it might be the best method as that allows some of the possibility of a profit in the gaps or runs that do occur while lessening the overall exposure. The issue that I do have is that too often we are recommended to buy more at a better price, this just serves to increase the overall exposure in a trade that is already headed in the wrong direction. I may consider that if I do close the whole position I have the option of buying back in at the next low suggested price which puts me in a better position to profit at that point compared to the rest of the room.

I'll see where the week ends.

Jeff.

Less than two weeks to D-day

August option expiration is next week and I have positions that are too large due to past sizing rules. It is not so much that they were initially too large but that we, as a group, increased the sizing when the prices were better in order to average the cost down. That and I changed my sizing after getting into some of these. In order to take full advantage of the total trading plan I followed along and bought more of some positions as recommended... knowing that these were swing trades and knowing that I probably should have just left well enough alone. The trouble is that if a adding more contracts is called for then the average cost is the consideration when selling to determine if a profit is to be had...therefore if I do not enter the second string I run the risk of having to sell for a loss when the group is selling for a profit.

I need to rethink that process.

As a group we are all supposed to know how to properly size and manage our accounts, which is fine, and I expect to take some hits in order to learn some of what I may not know or may not have tuned in yet. The issue has been that the trades that are supposed to be day trades have turned into swing trades. I have managed my account according to daytrading rules only to have some of these trades turn into swing trades after they did not work out in the morning trading. In hind sight I should have just closed any and all trades that were closing for a loss at the end of trading in the morning. Either that or just "re-sized" them to hold a much smaller position over. This would have let me still continue my daytrading as planned and also allowed me to take advantage of some of the swing trades with a minimum risk.

I don't mind holding a trade for a few days but holding through to expiration does two things:

1) it risks the option expiring worthless for a total loss of the position

2) it ties up that cash that could be used to day trade regularly therefore making up for any smaller losses.

I do not have trade records to be able to run the numbers for closing trades at the end of morning trading compared to holding them over but given the size of the trades right now I know that any loss would have been at least mitigated if not eliminated.

All in all the market is looking pretty bedraggled and ready to do some serious plummeting so I would hate to cash out only to miss some nice gains as a result. That is the crux of the situation as it stands now.

Jeff.

...and the room shifts again

Another fresh month for trading and another small batch of new traders enters the trading room. No big deal as we are locking down comments during the first bit of trading to keep the chatter out of the picture, less distracting that way.

We have shifted the scope once again as we are now going to concentrate on more true day trades and add selling options into the mix as well as not taking on nearly as many overnight trades... we'll see about that one.

I am working with a much smaller account base now due to a bunch of held trades that I would have preferred not to still be in, and perhaps not at the sizes that they are at. Even though they were sized according to my rules at the time they are bigger than what they maybe should have been as I have lowered my sizing even based on my previous account size.

If I go back to an old 5% of account risk rule it would put any account at 20 trades. Based on that a $20K account would have a $1000 per trade limit as any held option trade is considered a loss allowance, same as a stock trade losing $1000 no matter the price of the stock.

This obviously allows options to be traded in greater quantity as 20 trades are possible whereas stocks, say in the $30 range, would take about $10K of the account to allow a $3 stop loss (10% of the stock price).

So, this being the case, all held option trades would be considered a fair loss if they expire worthless and loose 100% of their value.

But, in a true day trade the loss is often capped at 20 - 30 cents per contract due to the short term nature of the trade. Yes, they can also be as high as $1 but normally the stop is dependent upon the pattern and activity at the time. Perhaps 50% of the price could be considered a normal maximum stop loss for options... if we knew ahead that they were not going to be held over. The trouble with using 50% is that it can effectively double the trade size, not a good idea.

All in all I expect that, once I get all the held trades closed, whether profitable or otherwise, I will be reviewing what sized trades I will plan on making regularly... yet once again.

Currently I am playing with $700 trades in order to allow enough cash to provide for a few trades at a time as a lot of cash is really tied up right now. This is on the small size as a small size should be about $1000, medium $2000 and large $3000. $700 is about as small as I can get and still see enough profit to overcome the commissions nicely as break even is between 2 and 6 cents depending upon the position size.

Long trading day today as we got into a trade that is taking forever. It also happens to be a naked short call play and we certainly don't want to leave it alone unsupervised so we are babysitting this one. I say we loosely as I just took a different strike put instead. I actually have been in and out for a profit already and bought back in later... perhaps I should have just stayed out of the second trade but this is fun too.

Jeff.

Change in plan... or a return to the original

I've been busy the last days so I have not blogged much, not too much to blog about anyway.

I was trading the Q's on the side last time around but I sent an email to our trading room mod and suggested that we consider doing this in the room for some easy trades when not much else is happening with stocks and other ETFs. Within a day or two that is exactly what we started to do so I decided to drop my personal trading, it didn't make sense to keep going with it.

We've been trading for very small targets lately which puts me at a disadvantage given my slightly higher commissions. Having said that there are enough changes and orders that do not get filled that moving to another broker would end up costing about the same anyway until I get to much larger trading sizes. So I am in a holding pattern with regards to brokers and seeing small profits in my account. Of 14 trading days in July 5 have been losing days and 8 winning. I am up but not by much more than about $600.

I have been using a formula to calculate expectancy ratios without figuring in the commissions in order to continue to track the potential of our trading. What I will also be doing is running the numbers without commissions altogether in order to get a better idea of the win loss ratios in order to determine. I was going to change my spreadsheets to let the trades reflect this per trade but I am better to just set a field to display the gross numbers either per day or per month.

The issue with the smaller commissions is not a real factor if I were trading with larger positions though. Some traders are posting profits in excess of the $500 target while I may have seen $100. Obviously they may be getting smaller commission, not counting commissions or over stating their numbers altogether. I do not want to gauge my progress against others though. I will grow the account at my pace and that is the way it will go.

Of course I couldn't help but check to see how much larger of trades I would have to make in order to see similar gains to some of those higher numbers. I would have to be trading 4 times my current sizing. I have intentionally dropped my size in order to allow for a few more concurrent trades in my account as we have a good number of trades held for swing trading now that sucks up my cash. Right now, had I my full trading capital I could run 27 trades at my current sizing. Doubling my sizing would put me at 13 trades, which is about where I would want to be.

I'll be glad when we close out those swings.... for some profits.

Jeff.

QQQQ with chart

No real tracking for yesterday, just didn't take the time.

Today I tracked the next week expiry puts (Jul 30) for the QQQQs and noted how their price reacted to the various time and ETF price factors given that today was a Friday... expected range bound day for a number of reasons.

I took one trade and tracked it until after lunch and notice one large factor that affected my decisions to stay in the trade. I bought the 45 strike puts for 41 cents as the price of QQQQ neared the Primary Pivot Point expecting a move down from that level. I should have been more observant of the moves thereafter while keeping in mind that I expected a range bound day, basically a lot of small up and down moves.

Here is the chart for the day with the correct trades marked.

I held the trade through the down, the next up and even through the third test of the high of day at $45.80. I closed the trade just as I saw the price get ready to kick up past the final test of HOD at about 1350h. My exit timing was good to minimize the loss... considering that I was still in the trade.

The interesting part is that the option price kept eroding away over the course of the day. I bought at 41 cents and each time the ETF price approached the same price level as where I bought I noticed that the option price had not regained the entire 41 cents. At one point it would only see 38 cents. This tells me that, like leveraged ETFs held over more than one directional move, the options have some similar reaction... even if it is for a completely different reason. This changes slightly how I will look at these options in future.

So, looking at the chart I plotted the trades that I should have made based on the numbers that I saw while I was holding this one lethargic trade over the day. The puts were the 45 strike and the calls were the 46 strike. These gave me low priced options in the 50 cent area.

Trade # 1 was in at 0.40 and out at 0.47, 12 contracts at 0.07 = $84

Trade #2 was in at 0.37 and out at 0.50, 13 contracts at 0.13 = $169

Trade # 3 was in at 0.35 and out at 0.47, 14 contracts at 0.12 = $168

Trade # 4 was in at 0.36 and out at 0.59, 13 contracts at 0.23 = $299

Less #133.60 in commissions leaves $586.40 in profits based on a $500 startup amount.

This style of playing is right in line with my old Counter Trend Positioning style of trading on a much shorter time frame. What I was missing was the confidence to go ahead and exit the trades when I saw the small profits and re-enter the opposite trade and again capturing smallish profits. The thing is that these small profits add up really quick as I would have doubled my $500 in one day and I have to realize that taking a 7 cent gain is not a bad thing... it just sounds to small to take at the time.

Jeff.

QQQQ index trade Jul 21 completion

Update for the day.

Trade - QQQQ Jul 23 Put 46 strike at 57 cents, 9 contracts

Exit based on neutral day with 1/2 PP stop target = 83 cents, $234 profit

Exit based on 100% profit target reached = $1.14, $513 profit

Exit based on trailing stops using 1/2 PP stops = $1.27, $630

Exit based on near EOD activity = $1.30ish, $657

Jeff.

QQQQ index trade working out well

Today was to be a neutral day after yesterday's large uptrend intra-day so I decided to track and not trade my newish QQQQ index trade plans... which is too bad. At least my plan is viable and that is the main thing.

Seeing as the market displayed a modest gap up from yesterday's close I would play the gap fade at the open to buy puts and consider a bounce to positive to buy calls if everything looked good... the calls would be a pure speculative thing and would have no real reason to play them though.

I jotted down the entry at the open for the Jul 23, 46 puts at 57 cents (the ask). Being that it was a neutral I would target the next PP level. Opening at $45.75 with R1 at $45.72 and 1/2 R1 at $45.26, that would be my target.

Once the QQQQ hit $45.26 the puts were at 83 cents for a profit of 26 cents based on 9 contracts. $234 in profits.

Not bad for a little hit and run. I am still tracking the price to see what my other plans would have produced and I am considering scaling out of positions using various techniques rather than using an all or nothing approach. ie: First half closed at first PP target, second run for trailing stops... I may have to double my trade size to make this worthwhile so I may skip it and stick with the profits (losses) based on my plans in the all or nothing fashion.

Jeff.

QQQQ index trading, charting

I miss playing with the charts to figure out trades and back testing and whatnot, so I like getting back into this again. It let's me do my own thing.



This morning I had not really formulated all of the rules and plans for trade management nor had I really thought the whole thing through. Seeing as the older option pricing is not as easy to sift as a stock I could not really work out the full potential of some variances of the trades.

In the above chart I entered the short trade, in hindsight I know why but I do not know why I did not enter the long trade instead or as well. I saw the setup, the huge gap (don't trade against a large gap...DUH!) and should have gone long where indicated. I know I certainly thought about it but I was stuck in my one trade mindset this morning.

I bought a put (July 23, 44 put) for 50 cents and held it for a 10 cent stop loss. Once the price hit the low of day the first time I recognized that it was a prime entry for a long call being that it was not only at a support level but it was immediately following a large gap down. If I had a choice to play a gap I would choose to always play it to fade the gap. I think I was sidetracked with other trading today and that is partly why I was not on the ball.

So a 10 contract trade at a 10 cent loss leaves a $100 loss.

The long trade was also 50 cents (July 23, 44 call) a few minutes earlier. I should have sold the put for a profit (9 cents or $90 dollars) and bought the call.

Following my various plans would have me exiting the call trade at 67 cents for a 17 cent profit (I marked it down when I saw it as if trading it, not just backtesting). With the 10 contract tradee that was $170.

Using the trailing stop or EOD produced the same result as it was a great uptrending day, exit was $1.35 or an 85 cent profit, $850.

So, entering the put trade at teh ideal time and entering the call trade at it's ideal time would have me netting $750, not bad for an indecisive trade after taking both sides. I would expect that there would be times where the day whipsaws me out of both trades for a loss but it would take a lot of that to eliminate these sorts of gains. I almost exited the put trade, had I had more confidence in my trade plan (newly formulating) I would have exited and bought the call. Each time that I take a profit decreases the odds of ending on a down day. Had I actually done that today I could have easily netted over $900.

Should have, would have, could have means nothing in trading other than to teach a lesson or enlighten on a tweak to a system.

Jeff.

Index trading needs some work, the plans.

I could not sit by and not place a trade on my index trading idea. I always find that putting money on the line keeps my attention to the matter at hand better than just sort of watching it. This prompted me to recall an old idea I had in taking two sides of a position in order to capture an overall move, sort of a stopped hedge idea.

I'll get to that later, or it may just be plainly obvious in a moment, or the next post anyway.

The overall idea is to trade calls or puts on the ETF using the price activity to trade with the trend and daily bias for the day using the Pivot Point (PP) and Support and Resistance levels (S1,2,3 and R1,2,3) for entry determination. I figure that using the PP would be the best but the other levels may be suitable under certain circumstances.... today for example.

Any further planning is really just guidelines to use to manage the position once entered.

Plan ONE is to use the very next PP or Support or Resistance level as a target to exit the option trade. Quick in, quick out and quick profits. Use for neutral or light days.

Plan TWO is to use the Support and Resistance levels as stops, once the price of the underlying index ETF (QQQQ in this case) passes each level the one immediately preceding is then the new stop... or move the stop as if a VTSO based on the space between the levels. Use for more heavily biased days or when the stock price takes off and allows early stop setting in profit.

Plan THREE is to enter initially and close near the End Of Day (EOD) in order to take advantage of large intraday trending moves. Sort of the default ini the case where nothing else gets hit and I want to exit to be in cash overnight... no holding these overnight.

Plan FOUR is to set a target of 100% profits. Based on the initial price of the stock I would set a limit exit at 100% of the option price no matter what the stock is doing. This is not so much a total plan as an add on to the exiting ones as I might just use this point as a stop order to secure the 100% gains and perhaps let the price run with a true VTSO (if I can do those on options...I've forgotten now). I might also consider this as a default as perhaps I should be happy with 100% gains and just get out to be out at this point every single time.

In all cases the stop loss will be set to exit the trade if the stock hits the next PP, Support or Resistance level in the wrong direction... that might be 10 cents on the option or so.

Also, I will ALWAYS use the front month (very next expiry series of options) and very close to the money. The QQQQs run $1 strikes so this is very easy.

Jeff.

Expanding on the index trading just a little bit

I decided to take a few minutes and go back to last week and do some math to support the idea of option trading the the QQQQ based on the daily bias.

The price opened on the primary pivot point and headed steeply down.

Trading the stock would have produced about 70 cents per share, $70 on my 100 share trade while trailing the stop at 1/2 PPs and a full $1 near EOD closing.

Going back to the options and trading strictly the next option expiry is a lot different.

The July 23 44 puts traded at 0930h at 20 cents... so I figure that a market order at the open might have cost 25 cents (I cannot see the quotes, just the actual traded options). A 25 cent option with $500 to trade with is a 20 contract trade. The first exit has the option selling at 40 cents and the EOD exit lowest was 47 cents.

Compared to the $70 and $100 stock trade profits these profits are in the neighbourhood of $300 and $440. Even if I flubbed the trades and only snatched half of the move with options I still make 50% more on the smaller trade than nailing the stock trade on the high side.

Thursday was a $240 day.

I am sure that day one will be either mediocre or a loss but I will get this going and figure out what an acceptable loss per trade might be and see how it runs long term.

Jeff.

Room to play the Q's, more on the index trading.

Well, deciding not to play with the momentum stuff for now led me to play with something else.... I just cannot help it.

Last week I posted about a plan to trade the QQQQ (NASDAQ ETF) based on our trading room daily bias estimate (bearish, neutral, bullish with various degrees). I recall playing it as if I traded the stock, mainly due to the historical option prices being more complicated to gather for profit targets and the profit came to something like $1,250 for a couple of recent weeks trading.

Today I started with this in mind but I tracked both the stock and option prices. Although the day is not over I hit one of my target exit points, the first level resistance below the primary pivot point. Being that it was a neutral expectation today I would do a profit hit and run rather than holding for larger gains, one half of the first resistance was my target.

Playing the ETF when I saw the entry would have me short at $44.70 (probably higher as it was higher when I "thought" the trade should go but I like to fudge against me). Exit would have been at $44.30, the 1/2 resistance was $44.32, for a 40 cents per share gain.

Here is where my stock trading idea falls apart. In order to make this trade worth the bother I would have to be trading a few hundred shares at least. I know I said that 300 shares would tie up an acceptable amount of cash but this is over $4,000. I also know that the stop would be in the under $100 range, but for my trading purposes I would rather be using less cash, $1,500 might be my max which leaves me with a 100 share trade and a $40 profits. That is just not worth taking my attention away from my other trading.

So I tracked the option activity and pricing. Options are much cheaper so I figured I could spare $500 or so to play and see what I could scare up.

I would trade the front month or the next expiry period. With the QQQQ options there were July 23rd options in addition to the July 18th. I tracked the Aug 21st as well.

July 44 puts cost 37 cents when the ETF price neared the $44.70 entry, this is also fudged against me. August were at $1.08.

At exit target July were at 47 cents and August were at $1.26.

These are all market orders so I count as if I were paying worst price at the times, buy the ask, sell the bid.

Profits would be $240 for 15 July contracts and $90 for 5 August contracts and both trades used less than $600 in cash.

Well, this looks to be far more lucrative than the stock play at this point and it is just extra cash in my account to use for other trading... or maybe this can be my play money stash. Doing a bit of a back check I see that the market more often tracks with the bias laid out in the morning so I should be able to establish a pretty good edge for this idea.

Although today was a virtual trade but I think I may follow it up with some live trading over the course of the week... or at least into next week. It only takes an extra click to buy and one to sell when I have these setup properly.

Oh, I have two other target exits that I am playing with. Exit 2 will use a trailing stop using the 1/2 pivot points and the other will use a near end of day exit to see if, on extremely bearish or bullish days, I can capture some large moves.

More fun and games to add to the mix.

Jeff.

Daytrading only for now

I decided to stick solely with daytrading for the time being as it is less sensitive to market moves as generally trades don't get held much past a few overnight or for a few days, normally. This lets me focus on one style and set of trades, although I will keep my trend trades as they take nothing to hold.

I will be trading with cash as if it were still the same account that I was using, which means working with the original $6,700 base plus all of the strictly daytrading profits. This lets me bump trades up to $1,200 per trade based on 60% account usage with 7 concurrent trades... which seems to be the maximum target number right now.

Part of my decision has to do with perhaps taking some more holidays and perhaps being out of touch again. It is easier to just close some daytrades than to close longer term trades, particularly when they may be deeper in the red due to fluctuations in the underlying stock...even if it is expected.

I also decided to drop the momentum stats on my main page seeing as those profits are, basically, at zero now. I'll start it back up later.

Jeff.

Interesting index trading idea

I get an update prior to the market opening that outlines the trading room expectation of the market direction, bearish and bullish with a degree level. Seeing as I have extra capital (20% minimum) to play with outside of cash set aside for trades... assuming that I do the full number of trades anyway... I can place typical stock trades using margin to leverage 3 to 1.

So a bearish outlook in conjunction with various pivot point levels (old school day trading stuff) could easily have me buy or short the QQQQ ETF (Nasdaq representation). I plotted the daily ATR based on a 10 day moving average which has been higher than 48 cents for the last couple of years. In fact the low of the last few months has been 88 cents. This is an acceptable move when applying a tight stop as any gain of even 5 cents can produce at least a break even trade.

So, a bearish day would have me shorting the stock if it nears the daily pivot point...although this strategy I have yet to work out... or buy the stock on a bullish day on the topside of the pivot. This is a single day trade setup per day and it either works or it does not. perhaps a 20 cent stop on a 200 - 300 share trade ($60 MLA).

I figure that a 20 cent VTSO off the start followed by some more trade management once it starts to move (using pivot points and support and resistance levels as stops and targets) in order to hold the trade for as long as possible with the goal of getting at last to break even as quick as possible. This is not my primary trade plan so it is allowed to cut a trade quickly for small profits as the entire goal is to see if I can catch more longer intra day moves based on the forecast than I lose on... without affecting other trades. I can even enter trades pre-market if I think it will work out well.

This will be the start of my stock trading in place of options. Even though this is not part of the day trading plan I like the idea. 200-300 share trades at this point are only going to take about $3500 with a $60 loss allowance.

Seeing as we have had many days where a bearish (or bullish) day was expected and all of our option picks ran away without us this gives me the opportunity to take advantage of the overall move without undue risk. It also sets me up for stock trading practice with the different available order types in the Elite platform now.

Examples of gains from this would be:

Friday = 70 cents (all 250 shares based on the startup cash float...this can grow each day if wanted)

Thursday = 40 cents

(Holidays for one week)

July 2 = 40 cents

July 1 = 75 cents

June 30 = 80 cents

June 29 = 60 cents

June 28 = 9 cents

June 27 = 25 cents

June 24 = 30 cents

June 22 = 80 cents

June 21 - 50 cents to $1 ( I will use 50 cents)

There is about $1,250 in profits in those simple little trades. Now I am sure that I might not get in all of them as well as that and others I could easily have gotten in better so that may work out in the wash. There are also about $130 in commissions to account for but all in all these are easy small quick trades of 250 shares using pivot points for entry and exit guidelines. Pre-market trading may likely add more to the profits as the levels are known at the previous day close.

Just an idle idea that I may try out in real trading upon my return on Monday.

Jeff.

Momentum / day trading account split

Just a little blathering on about playing with numbers regarding trade sizing again.

Seeing as I was playing with profits only for the momentum trading and most of those tanked due to poor entry timing, I am having to consider how to size those trades... which I have talked about before. Now it is not so much how to size the new trades but how to split the account into three partitions for each of the three methods of trading. Trade sizing using the equal value model is the way to go... that part is the easy part.

Having said that, my gut says to drop momentum altogether and just go with daytrading for the next while THEN get back into the momentum stuff. I don't always listen to my gut though.

So I figure that I will count the stock trades as liquid capital, to be used if needed as it is only about $1,500 in cash due to the way stocks get assigned margin based on the buying power in the account. I have decided that I will set aside 20% of the base capital to hold as cash anyway so these get lumped into this float amount.

Then I will split the balance into two unequal parts weighted heavily towards daytrading. If I go with 10 possible concurrent trades in daytrading and the same for momentum trading and I use a 60+/40- split that allows all daytrades to be a minimum of $1,000 I should be OK.

I may go as high as 75% but that puts my momentum trades into such a small scale that I may be best to just leave them alone until the capital base is larger. Perhaps when reasoning confirms my gut I should go with that and assign 100% of the trading capital to the daytrading and be done with it.

That makes my trades in the $1,500 range and we are not likely to get to 10 concurrent trades as the room is aiming for 3-5 per day... the odd one gets held over depending upon the market conditions at the time.

I may see how many trades are expected in the momentum trading, if I figure on 6 or 7 and lower the daytrading to the sort of 7 max the numbers look a little more favourable to continue with both trading plans. This gives me a 65/35 split which puts daytrades into the $1,400 size and momentum trades into the $750 area. That would be acceptable and, given the track record of both services I feel comfortable with those numbers.

Now it's time to wait for Monday's trading.

Jeff.

July update

Today was a little more like it in the day trading realm as it was a $350 day. This month has been very lack luster as the first week was a holiday week, the trading room had to do some paring of deadwood and the market is not moving very fast anywhere to enable quick trades to take place in the first hour.

I figure that anything over $500 this month is a bonus so I have no expectations for the rest of the month... that does not mean there will be no more profits than that, it just means that $500 or more is my target.

Why set an upper limit target?

My momentum trading is still set to take a large hit tomorrow as nothing is really moving in my favour. One option is actually in the money but I paid enough for it that the stock price would have to be a couple...or three... dollars ITM to be even break even. I just have to be sure to close any trade that is set to expire ITM as I do not want to get assigned a stock. In fact I think that I will contact Questrade and clarify if I need to close positions if I have no intention of taking the stock.

Jeff.

More pro-value sizing calculations

Previously I had started using same sizing on my daytrades, I was up to 5 contracts for each when I shifted over to same value instead, due to it proving to be a better all round plan.

Something I noticed today, not really terribly relevant but interesting none the less, is that the average option price based on trade value based on same value sizing is much lower than the average real option pricing based on historical trades. But I will ignore that for now and try another way of calculating potential profits based on historical trading numbers.

My previous option price average was $2.61.

My overall profit per contract was $19.

I have traded 196 trades to date.

Using a $1000 trade value:

- same sizing 3.8 contracts per trade or 744 contracts

(I should be using 3 as partials cannot be traded)

- same value is 6.9 contracts per trade or 1352 contracts

(6.9 is accurate as it is an average of trades between 2 and 12 contracts)

A) Same sizing yields $14,136

B) Same value yields $25,688

These need to be adjusted for commissions.

Old commission rate totals:

A) $5,388

B) $6,604

New commission rate total:

A) $3,840

B) $4,752

A note about the same value contract count:

Same value trading is higher due to the lower option prices allowing to trade up to 20 contracts per trade. The range, adjusted to fit the $2.61 average price, leaves me with prices from 81 cents to $4.06 possible and sizes from 2 to 12 contracts. Figuring that there are about 10 trades per price level to spread it out evenly allows a trade size average much higher than using a straight $1000 divided by the average price. As a result a 12 contract trade will yield a higher profit than a 2 contract trade based on the 19 cent average profit. The trouble with this may be that it artificially inflates the profits on the smaller sized trades as they may have typically smaller per contract gains. I am making the assumption that the same is true for the larger trades as 19 cents is a very small move in a $3 option. In fact that move on the smallest price in the range of 81 cents is 23.5% and in the highest range of $4.06 it is only 4.7%. Lately our targets have been in the 20% range for the daytrading... so these numbers are not that far off.

Jeff.

The hard truth about losses

Losses are not fun but they always provide lessons to learn from... it's either that or the lesson is not learned and the losses are repeated in the same manner as before. That usually means that there was a way to mitigate the loss that was either a result of ignorance or ignored in greed.

Of course there is over confidence, but that is a side bar of greed of it's own reasoning.

Enter the largest possible single day loss that I may be racking up this Friday. While I will not count it out yet I will learn from the potential loss as if it had already occurred.

This is primarily in the momentum trading account, which is now combined with the day and trend trading, but that matters little.

Last month I ratcheted my trade count up to 5 contracts per trade. I already had a number of positions of 3 and 4 and now a few in the 5 area. Then we entered some "second string" trades, basically averaging down but still counting the additional contracts as if they were a separate trade. These I did not enter as five contracts per trade but 2 or 3 contracts were added. All in all I end up with 17 separate options in play with about 104 contracts in total. This is about $21,000 in options purchased, most of which are expiring this Friday. Seeing as I have combined my capital and trades I can count all my profits together and know that this eats up a great big chunk of my total profits since this program's inception as that $21K could be a 100% total loss... although I think some of it can be recouped with some careful trade management assuming that the market, or at least some of the individual stocks drop in price by weeks end.

The lesson, which is more important than the loss, is that better trade sizing would have made this a much sweeter pill to swallow, or at least not quite so bitter.

Seeing as I like my spreadsheets I created one to track all of my momentum trades as if they were of equal weighting, similar to what I am doing with the daytrading now. This serves to make a trade returning 20% no matter the option pricing, return the same dollar value as any other trade returning 20%. This also keeps the maximum loss of any single trade to the same maximum loss of any other single trade.

Total trading profits to date = approximately $21,000

Current trades as if 100% loss = approximately $21,000 loss (Yah, Ouch!)

Trade size = $1,000 from inception total profits = $30,000 (without changing my daytrading)

Current trades as if 100% loss = approximately $11,000 in profits retained

This is due partly to the same valuation of each loss, nothing oversized but also to the fact that a smaller priced option would have the exact same weighting on the profit scale as any other option given a similar actual ROI. 20% of a $1000 trade of 50 cent options would be the same as a 20% gain in a $5 option... with some variation due to commission structure.

So, if I end on a sour note on Friday I will be re-visiting my trading sizing overall once again in order to determine where best to apply my capital in order to maximize the profit potential going forward.

I think that I will consider daytrading the primary method of trading for right now, concentrate on the short term in and out trades while aiming for that $500 daily average. If I use 15 possible concurrent trades and apply 80% of the trading capital I should end with a decent buffer and be able to increase the trade sizing gradually while reducing the amount of trading capital in use. At some point I will get back into the momentum trading with small trade value sizing once I have $5,000 that can be applied as 10 $400 trades (using only 80% in total)... perhaps a month or two...perhaps less.

Jeff.

Delta isn't all it's cracked up to be

I had a small lesson in Delta, one of the "Greeks" having to do with options. This one represents the expected option price change relative to the underlying stock price change.

For example, a Delta of 0.5 would indicate an expectation that if the stock price moved $1 the option would move 50 cents.

Today I was watching a position that was held overnight that was down about 35 cents with a Delta of 0.45. The stock was set to open up about $1.50 which would lead one to conclude that the option should move approximately 68 cents. Instead it moved 40 cents, which was enough to put the position in a slight profit and let me close it but demonstrated that the Delta is not a sure thing.

I have known this all along but I paid particular attention to this one out of curiosity. Often the option price does not move as expected as there is a supply and demand issue as well as a certain expectation of a stock's most likely move.

On the regular trading front trading is not so hot right now. The market is at a strange point and have been moving or oscillating while not following any particular pattern... at least not one that is very predictable.

We'll see how things fall out later this week.

Jeff.

Holidays are over...back to business

Well, the holiday is over. Five days of hot camping weather and no rain until the last day. Couldn't have ordered it much better.

Of course looking at the markets I could have ordered those MUCH better. That rally last week has driven my mostly put trades well into the red and most of them are expiring on Friday... we will see what this brings. Hope really has no place in the market so I will just wait and see what the numbers say.

I have consolidated all of my trading cash into one account over the break so now I can tinker with larger trades and decide how much to allocate to daytrading, momentum swing trading and trend stock trading on the fly. Currently I decided to use all spare cash for daytrading only. This week I will probably keep trades smallish... perhaps $1,000 per trade. Once we, as a group, get settled into the trading again I may ramp it up a bit more. I am aiming to be able to handle a certain number of concurrent trades and, once expiry is done with, I will apply that rule of thumb across all my option trading. I think that allowing for 20 concurrent trades in total with a 20% cash buffer should suffice.

In the future I anticipate that the cash buffer will allow me to skim profits even when I might have a poor month without directly affecting my trading power. The cash buffer may reduce during those times but the active trading capital should remain at least constant.

I don't expect that there will be a lot to talk about here for the next week so the blog will be mostly quiet. I have my plan dialed in now.

Jeff.