Housekeeping, Questrader Elite, One Down

There is not too much to report on the trading front today, just some housekeeping mainly.

I cancelled one swing style trading service as the track record was next to abysmal. Considering the marketing said that I should be making nice profits in the first 30 days....not only was I seeing losses I was also seeing a 1 in 7 win rate. At that the winner was just a small profit as well. Full money refund.

I did go back and check the historical track record. 57% winners. Not a spectacular record at all. Now had I made every single trade over the period I would have made out OK. Say $1000 trades every single time would have me in the $20,000 profit mark after well over 200 trades. History didn't seem to want to repeat itself or I would have held the service through.

One of my trial criteria is typically to test and use the "free trial" or guarantee period to pay for the service. If it can do that then I will carry it forward for a while and see how it works. To date I have not ever had one single service do that.

The second service is doing much better. 1 winner, 7 in the money trades and one loser. Not bad

Then there is the daytrading.

Work in progress this one. My trading volume is up just over 60 trades this month so I elected to upgrade to Questrader Elite again. This gives me more active charts, multiple order boxes and a dome order view which, I haven't tried before, allows me to place orders by clicking on the quote. I also recall something about being able to place limit target orders and stop orders simultaneously...but I might be wrong on that one.

As far as the service is concerned, I like the live atmosphere of a trading room. The trades are somewhere under the 50% winners right now....but I have pretty much chosen to discount last week as a writeoff due to the issues surrounding people not being able to follow instructions and the gearing up of a new service.

I should have waited until this week to start. If I add up the total subscriber base and multiply the annual revenue from this alone it certainly behooves the host/moderator/supplier to produce some results. The attrition rate if he does not will be terrible.

I have some faith in this though. Others are using other services from the same fellow and they are quite happy with the results. So I am only one week into a four week trial anyway. Like I said though, I may start over with this one.

Jeff.

Daytrading, another self test

Quite a while back I had an idea to trade in the first hour of the market in order to make a few good intraday swing style trades at the time that the trading is the most volatile. I found that it was tough due to poor information flow or just plain wrong judgement calls. I made some nice trades and some poor trades.

I have learned a lot doing this testing of my ideas, and some ideas of others as well. The thing that I find about all the old ideas that I have tried is that they always reside in the back of my mind as I think about future ideas or trades. Something will come up to remind me of something I tried before and may offer a new slant or a twist that may make it work better.

This is just another example, the early day trade. I plan to start with some pre-market setups this time...get positioned before the big volume start in some cases.

Today I jumped back in and joined a chat room style setup (paid subscription). It took only a few minutes to setup my charts in my old platform, nice to get back into something that has some faster execution and tracking tools. I am set up now for pre-market trading as well as after market...not that I plan on being there after market. It was also nice to hear some banter about the market and the securities being looked at.

RIMM and GOLD were on the plate and I ended up with a break even morning with only two trades. I looked at the options a bit and would have been better off trading those even with the higher commissions. That may become my focus in future.

I bailed on my trades before the big run up in GOLD and before the return to break even in RIMM. The GOLD potential had I played my stop just 5 cents lower (even a penny would have done it as I got nailed at $72.00) was a full $2 gain for my entry by noon.

The setup was to get in near the daily pivot point at $71.27, I waffled and got in at $71.40. I was following along with the room but my normal play would have been to follow the price with 1/2 PP moves...I split the pivot point and resistance 1, 2 etc in 1/2 size increments and move the stop as each higher (or lower for shorts) 1/2 point gets hit.

So, in at $71.40 or less (ideally). Initial stop at $70.80 (1/2 S1).

Trailing stops at $71.26, $72.07, $72.88, $73.33 and $73.76, all the 1/2 points of S1 through R2.

Price moves from PP to 1/2 R1 ($72.07) and I placed my stop at $72.00 I should know better then using even numbers as I should have used $71.95. I was stopped out and left the trade at that. Since, the price hovered there and moved past $72.88 without pause and cleared $73 to hover at the current $73.40 range. Consolidation and prime exit point here.

Definitely worth noting is that the monthly 1/2 R1 line is $73.41 which was the upper range of the day thus far.

RIMM was to have been the exact same play, the price did not approach the PP until about 1020h so I got in far too early. When it did approach it nailed the $70.45 and promptly headed back up returning to near the opening price. The best trade plan would have been to short this off the start for the move tot he PP (almost a full dollar) then reverse the trade at the pp for the return (75 to 90 cents depending upon the exit).

As long as I have charts with the pivots and support and resistance lines this is not a difficult method to trade. Right now I am using esignal delayed so my live charting is through my trading platform...there are very few usable tools there for charting... so I may upgrade my esignal package to realtime again soon. Once I establish a credible profitable trading strategy and pay for the service that is.

No charts today.

Jeff.

February 18th, the opening head game

Well,

The opening was very interesting. The index is doing what I suggested it would but I got shaken out before getting into any trades. I intended to get in on the initial roller coaster ride but didn't expect two things:

1) it happened very fast off the start
2) HGU and HGD BOTH went down at the same time

In theory the two funds are the inverse of each other proportionally based on percentage changes, with some margin allowed for trading spreads. So, if HGU goes down then it stands to reason that HGD should go up.

BUT THAT DID NOT HAPPEN! In the first two minutes Global Gold (GD) dropped about $1, HGU dropped close to 10 cents (which is about right) and HGD also dropped about 5 cents...HUH? It should have gone up by about that amount.

I seriously considered a quick momentum reversal play in minute two as I figured that there must have been a glitch in HGD and it will quickly head back up...but that is a very early entry and prone to problems with a market order....with a regular stock that is. ETFs seem to work differently when it comes to higher volume activity. My hesitation was my downfall on this move.

So everything settled out in minute three and was back on track...except that I was not on board. Minute three moved too far too fast for me to feel comfortable getting in but I should have gone with my estimation of the movement that I made yesterday and just bit the bullet and ordered.

Alas, HGD has moved 40 cents from open and 50 cents from where I would have tried to get in had I not hesitated.

So now I just wait for things to settle out and see where the rest of the day leads me.

Jeff.

The gap fade

Today was a great day to play the longer term day trade, in fact I thought it might be best to just place a short at the earliest peak and let it run... but I don't have the patience for that right now. It certainly would have been a good application for some sort of moving stop but probably not a VTSO as that would have gotten hit pretty early in the day.

The setup was classic. I entered my pivot points, 15 minutes, checked the trading price of gold in other markets, 45 seconds and decided that the day was going to be a huge gap up and run or a fade...given the size of the gap and the trading of late I was putting my money on the fade.

This is an example of why I like the day trading arena. Time spent researching...45 seconds... as the pivot point setup is a technical tool. I know of traders who get up early, 4AM, to research the markets, check out scans to determine what stocks they are going to trade, set those stocks up in their platforms, then wait anxiously until the market opens and hope that all that time spent is worth it.

Most, in fact the vast majority of those traders are not trading right now either because the market is not reacting as they think it normally should (whatever normal is) or they have lost a lot of money and cannot stomach it anymore. A percentage I keep stumbling across is 3% of all traders ever make it consistently. With the influx of online traders right now that makes a lot of easy money available for those 3% that know how to pull it out of the market.

I feel that the research adds a bias to the idea where the price is going to go.

Consider that it can only really do one of two things, in the big picture. It can go up, it can go down, it can wallow around and churn while not really going anywhere. So all the research and watching for a slightly better then one in three guess is not my idea of a good time.

If I am wrong off the start, I lose a few bucks then change my plan. I have not invested a lot of time in deciding which way it is going to go so I won't get caught in the trap of wishing and wanting it to go my way, I have no way, I just follow the price action.

For the record, the gap up was a guaranteed move, there was next to a zero percent chance of it not jumping at least $2 off the start given the price of gold, and it went over $3. The aftermath was just a hunch and best guess. I would put a 70% or better chance of an overall fade in the current market for such a jump. Had it gapped down I would have put a similar chance of the gap NOT fading and the price continuing down, under similar market circumstances.

Back to the day.

The gap started a quick momentum move in the direction of the gap which quickly peaked and fell, the first short entry ...which I hesitated on and missed...no big deal (which is one of the other reasons I like day trading, the next setup is only minutes away, not days).

Truth be told I fumbled the first couple of prime entries, the first short, the resulting long for the rally, then the very next short...I need to close my door so nobody can chatter at me while I watch these setups but mainly I need to tailor my limit order entries to not be quite sot tight as I try to squeeze every penny out of the starting price. I refuse to chase the price, I want it to come to me, so I miss a few and usually by pennies.

I ended up 1.07% net gain, still meeting my goal but missed at least that much off the start.

Shorting the top would have me closer to 2% after just riding it until sometime after lunch. The day is not done yet but I doubt that I will trade any more as the action is slow and unpredictable now...although it may still drop to fill the morning gap, just not for sure.

I won't speculate as to how much I really might have made had I hit the trades that I setup initially as I just didn't make them.

Just another fun day in the market.

BTW, I was done by about 1030h. Another reason I don't like the typical DTing "idea". I make my money or take my losses for the day early and get the heck out, I have other stuff to do for the day... although I would love to hit a really nice day for letting trades run and sit it out to make some serious cash...another time though.

Jeff.

Lines of Support and Resistance

See the previous posting's chart and commentary as I charted lines of resistance and support for AEM. I was looking to try to set up a system or method to pick these lines out easily and plot them in some useable format for morning daytrading and was having some difficulty. The lines were good, historical lines would follow through with some relevance for future moves but I could not come up with any good method other than just charting them in.

I seem to stumble over things while working on my plans that are relevant so often it is almost un-natural. I think it has to do with the fact that I am looking at a plan and see something similar so I pursue it. Often it clarifies or simplies what I was trying to get to. This was no exception.

I ran across somone using Pivot Points (PP) since plotting that last chart. I have used them yesterday and today during my fake trading and have very good success. I'm not certain if the prices follow these lines or the lines follow the prices but they verge on being a leading indicator...somewhat prescient and at least as reliable as my historical resistance and support lines.

Monday I pulled $1.43 per share out of the market and today I pulled $1.23. I stopped at four trades Tuesday to track but I went ahead and faked two more while on the phone and pulled another $1.06 per share out. I made one losing trade (-6 cents per share).

NOTE: I didn't get this post done until Thursday night so this was as of Tuesday.

Total net gains this week based on 100 share trades = $196.00 or 3.9% portfolio gain

Total net gains for last week = $523 or 10.4% portfolio gain (no trading on Friday)

Total net gains since starting this plan = $719.00 or 14.3% portfolio gain


Keeping in mind that I eliminated variances between real trading and fake trading by testing the trades and losing money in the testing to determine how these get executed. These are fake trades but very accurate fake trades. This would not work the same for 1000 share trades but will for 100 or 200 share trades in a liquid stock.

Even so, assume the worst and this is twice what I might expect.

Total net gains this week based on 100 share trades = $98.00 or 1.95% portfolio gain

Total net gains for last week = $261 or 5.2% portfolio gain (no trading on Friday)

Total net gains since starting this plan = $360.00 or 7.2% portfolio gain

Either way, if the trading proves half as consistant as it has I would be happy with the results as I am trading with half of my available buying power right now. So doubling the trade size can result in slightly better than double the returns (commission only paid once) which puts me back to where I was with the firts calculations. Considering that this could be an income replacement strategy, at a 1% to 2% return daily (quite doable) based on a $20,000 trading account that could produce $200 to $400 per trading day which adds up to $40,000 to $80,000 per year. Using the new TFSA and adding the full $5K per year allowance that makes this a 4 year plan with no tax implications, the downside is no margin is available in a TFSA so it may be a toss up...lose 30%+ to taxes or loose the 3x leverage power of the margin account. I really like the tax free aspect.

But I digress, this is my personal hope that the trading is profitable enough to turn into a real "business" sometime. I may have alluded to that in the past on this blog, I cannot recall.

JD.

The turn-about...early morning day trading

Well,


It appears that I have come almost full circle in my search for a successful method to trade and make some money.

I have ended up with a rather long entry this time but bear with me. The following entries will be shorter as I decided to cover more stuff with a new plan all in one go this time. I also went through a "should have" which I don't like to do, but it is a bit more than just speculation as the only difference between not doing it and pulling the trigger was a 30 second hesitation and a drive to follow my plan as it unfolded this morning...yah I kicked myself but I also realize that these will happen again and hopefully they will be firmly in my sights.

I started out with long term value investing as the goal...too slow among other things so it didn't work out. My next foray ended up with me trying my hand at day trading with limited success. Then came swing style, counter trend, position and a number of variations in between. While the plans were mostly of my own concoction they shared common elements with these other styles of trading. Some worked, some didn't work so well. Most were restricted by my start up capital, very small loss allowance or my exuberance.

My current project is another run at daytrading with a few variations. Over the last 6 months I have had the chance to read about some day trader's great losses, other claimed huge profits and the more moderate line that you can't make a living trading but they have a decent system that makes them some money.

Of all of the things that I have gathered in my perusing, here is the list of those that I felt were of most use to me:

• there are certain times or even days that are better for trading than others
• get comfortable with a few stocks
• get to know them and how they tend to react to certain market shinanigans
• be consistant
• set strict loss guidelines
• set goals that are not too out of reach
• treat trading as a business, not a hobby

It's hard to know whether I came to these realizations myself or read or heard them along the way.

So, to the trading....Stock Selection

I have selected a list of some of the most volatile stocks on the TSX following these criteria:

• an average daily swing of $1 or more, often more than $2 and as high as $4 or more.
• volume greater than 200,000 shares a day traded...the higher the better
• priced between $40 and $75, this let's me have the option of trading two at once
• The price regularly does most of it's moving in the morning, off the start

Of all the stocks available I ended up with 10 on my short list.

• Agnico-Eagle Mines Ltd. (AEM.TO) - Average daily swing >$1.5, 60 days >$2, ~$50
• Inmet Mining Corp. (IMN.TO) - Average daily swing >$2, 21 days >$4, ~$50
• Suncor Energy, Inc. (SU.TO) - Average daily swing >$1.5, 47 days >$2, ~$50
• Teck Cominco (TCK/B.TO) -Average daily swing ~$1.5, 40 days >$2, <$50
• Addax Petroleum Corp. (AXC.TO) - Average daily swing ~$1.5, 39 days >$2, <$50
• Canadian Pacific Railway (CP.TO) - Average daily swing >$1.5, 36 days >$2, <$75
• Imperal Oil (IMO.TO) - Average daily swing > $1, 34 days ~$2, ~$50
• CIBC (CM.TO) - Average daily swing ~$1, 35 days >$2, <75
• Magna Intl, Inc. (MG/A.TO) - Average daily swing ~$2, 40 days >$2, <$75
• Canadian Natural Resources (CNQ.TO) - Average daily swing >$2, 30 days >$4, ~$75

Of these CNQ and IMN are my favourites as they average over $2 daily swings and have swings as large as $4 often...having said that I have not traded them for real yet.

Keep in mind that stocks in the $100 and higher range swing far more than these but it really restricts the cash available and a larger swing means that a loss can add up quicker than I might expect. I watched a trader make three trades on one stock that was $164 or so and make over $700 trading with 100 share lots over a 1.5 hour period....without breaking a sweat. I picked up a lot just from watching him do this. Consider that he was using $16,400 to trade (could have been $6000 and margin) so the return for the day was 4.26% (based on margin use it could be 11.6%).

On a side note, this same trader only trades four stocks...ever...and makes decent money doing so and has been doing this for over two years. He is familiar with the stock enough that he can tell what it might do under certain market conditions.

PLAN A

So, my original plan was to buy the stock as close to the opening of the market as possible to get the first trades at the opening price, take my chances with the price move, cut it short if it went against me and let it run if it went in my favour. Pretty simple sounding. I was assuming a 30-40 cent loss and the gains would be in the neighbourhood of $1 or more...roughly 3:1, not bad even if I could nail 50% of the opening moves correct. Doing the math, for every 10 trades I would make at least $5 per share and loose at most $2 per share traded...net minimum $3 over 100 share trades is $300 less commissions ($10 per completed trade) leaves $200. that only averages out to $20 per trade and maybe two trades per day...not very promising.

The Returns

Looking at the percentage returns this looks a little better. It boils down to $200 per week, working with $5000 capital that is 4% per week. Ignoring compounding for now that is 208% per year assuming the odds stay the same and the average is 10 complete trades each and every week.

The Scrub

The downside...I tried getting these entries and I could not. For any number of reasons my trades are always delayed long enough to not get the opening trades and the price moves VERY fast in that first few seconds. Fast enough that a loss can accumulate while I think about pushing the sell button if I did get the order filled. Didn't leave me feeling all warm and fuzzy.

OK, Plan B.

Wait for the first minute to settle out and see what it is doing. Well, this puts me in the position of true day trading as I am now watching a chart while the price moves to determine if I should buy or not...and when. I was trying not to do this as it can be time consuming....which is why I decided to pick volatile stocks with large morning moves in the first place...gets the job done early.

So...I call the trade in the last 5 minutes leading up to the market open (the research) as I can see the bids and asks as they move around. This gives a clue as to where the price is likley to go off the start. So I ready myself, watch the market open and wait for the first minute to pass. What the price might do, and how I decide when to buy or short is more complicated than I can get into now...suffice it to say that making hundreds of practise trades over the last six months has shown me many things about how a price moves. I might also add that these same patterns that I see in one minute increments are apparent in daily increments as well...they are just happening faster so there is not much time to decide if it will follow the emerging patern through.

I'm afraid that this is where the fun is.

Within the first fifteen minutes I will have either made the first trade entry or I may have passed on the stock alltogether. I will always have at least two ready to go but for now I will concentrate on the first one that moves as I like.

Today's Initial Trade

Today was interesting as I entered a short order for AEM and made a net $44 (had I followed my rules that would have been $127, but I was more interested in making a quick buck this morning than letting it ride a bit and only breaking even). The alternate trade was MG/A, I was going to buy long, AEM looked like the better setup so I only watched MG/A

MG/A ranged almost a full $1.50 in the first minute...there was no way I could get in fast enough to ride that. Even if I did it then dropped right back to the bottom and $1 down farther. I could have shorted at the top and rode it down covering near the bottom so I could have seen a $150 to $250 profit depending on my timing...I left it alone, too fast for me right now. My gut screamed to go long at the new bottom though...and I watched it sit there for thirty seconds. I had decided to stick with AEM, a decision I soon came to regret....15 minutes later I would have been up $250...and $300 by 1000h or so. I would then have just set a Virtual Trailing Stop Order (VTSO) for 50 cents off and let it go at that point or just closed for a nice profit. I checked afterward, had I VTSOd I would have automatically closed the trade in the afternoon for a tidy net $512 profit.

Well. Obviously I can't pick them all right...I wouldn't mind a few of those though, which is the joy of this new plan. I can choose to trade every day, time permitting, or particular days of the week and if I am consistant I will get to ride these roller coasters when they appear. It would appear that most of the trading will be done in the first 30 minutes and anything beyond that will be letting a trade go on autopilot with the VTSO set appropriately to allow a certain minimum profit from that point on...Usually I would do this after the first $1 move in my favour then set the VTSO 30-50 cents off the current price as it continues along.

I made a second trade on AEM slightly later, entry was off so I got out too soon, lost a bit of my gains so counting commissions my day was up 0.12%...that's all of $6. Although it is too much work for such a small gain it is still a simple 31% annualized return...more than many other types of investments out there are likely to gain.

I'll update my original CTP goal and recalculate it to date and see if I can catch it. GAME ON!

JD.