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.