Greed is a bad thing

2k with 50 roundturns.  Then the market just hammered me.  At least I made out almost even with my cost of execution.  But I definitely learned new ways to control losses – one way paper flow isn’t the way you want to do it! J

Crappy day

Well, today is a tougher day of trading.  Things didn’t work out my way.  It was easy initially, but the market turned against me.  Good thing is I never used my max position.  The most I have in the open is 12 positions.

Not a lot of vol today.

Continuing with my strategy.  This month has been pretty good.  No losses as of yet.  With any trading, key is strategy, risk management, and capital.  Simulation is simulated with 50k credit. 

What a short covering day in the market

Well, the market rebounded from the fear.  The problem is the fundamental problem still exist – credit, not just cooperate credit problems but consumer’s credit issue as well.  The market is buying on rumors: any rumors that is good because great after couple of degrees of separation.  People start to think everything will be fine and traders starts to buy.  You get just enough of a push from the buyers at these prices, you get a huge short covering.  What goes down must come up (in a broad market – some stocks can go to zero, but broad market can’t unless the country stops trading completely).  What goes up must come down.  Right now, we came down too hard.  (I didn’t say too much).  Too steep of a fall will incur a price adjustment.  Too much doesn’t mean it is not justified if it is done overall time.  Here we have the largest price and percentage drop ever.  It is the opportunity to buy in the short term and take profit whenever you can. 

We love to see Yashil, even if it is over the internet. "Cutie pie!"

Like taking candy from babies

Ok. This morning's volatility is pretty crazy. But that is all good.
10 minutes of trading with all limit orders. The market is getting
swept up and down. People are scared of putting huge positions out in
the open. Let's see what the dumb@ss at 1600 Pennsylvania Ave has to
say in a bit. Done trading for the day.

More Trading

I didn’t have time to trade yesterday.  So no P&L for yesterday.

So far, I haven’t done any today either.  I did make the right call to a friend this morning saying “sell , sell, sell” when the DOW was up.  The credit market problem is more severe than people realize.  The $700 billion only addresses the mortgage debt.  We haven’t even begun talking about credit card and commercial real estate debt.  The banks will not loan out money to people who are behind on bills.  These banks took enough of a hit in the mortgage debts that they learned their lessons – people making 40k shouldn’t live in a 1 million dollar home, and this lesson is being learned by the credit units.  They will stop giving credit to people who are already in debt – giving them more credit doesn’t help bank any bit. 

I don’t understand why people would rack up a ton of credit card debt.  People just don’t know who to live within their means.  We make decent money, but we live in a town house, drive a ‘99 Camry with 150k miles and a ’01 Eclipse with 80k miles.  We can totally get a BMW or a Mercedes if we want, but we don’t want to stretch our finances.  A wise CEO (well… was wise at one point until he stopped listening to his own advice) said “risk management is controlling of losses so you can fight another day”.  That is by Fuld who was the CEO of Lehmans, 3 months before Lehmans went under.  We want to control our risk so we have a rainy day fund, and we have enough so we don’t have to live on the streets.  This country is not a country where everyone gets bailed out.  People need to start to wake up and smell the reality.  The reality is that people in this country live like royalties because a lot of people here think money is free and will always be there.  My parents came here with two suit cases.  I remember my dad made around $500 a month in 1988-1989.  He saved enough for two airline tickets for my mom and I to come and enough to have a rainy day fund – which we needed when things got bad during the 89-92 recession.  I remember we didn’t buy new clothes, fancy electronics, etc.  We bought what we needed.  I am not saying we all should be that way, but a little financial conservatism is key to financial stability.

Speaking of stability, I would recommend anyone with a large exposure out in the market to hedge 20-25% of their exposure on the short ETFs.  SH is a good one. 

Crazy trading day

Wow.  Another crazy day on the market.  I didn’t have time to be in the market today.  Had several shorts before going to a meeting.  I had set an OCO order before going to the meeting.  Too bad I didn’t set the OCO deep enough, otherwise, my shorts would have made a killing today.  Oh well.  Anyway, here is my P&L today. 

The Amazing Ravi Shankar

Went to a Ravi Shankar concert today.  He is 88. Supposedly, this is his last concert.  

10/3/2008's P&L in Simulated Environment

As you can see, 10/3's trades were not as efficient as trades done on 10/2.  Reason being, I took a short position in the morning and fared badly - causing me to take a big loss.  But the key thing is understanding of the market psychology and adjusting your trading strategy constantly to fit TODAY's market.  So for 1:30 of working the market (remind you, I am not looking at it all the time since this is just something I do on the side), $1000.00 is not bad at all.  Nice bonus for the day, if it was real money.  :) 

Let's see what the afternoon session brings.  I am not sure if I want or have time to trade more in the afternoon.

Well, one of my standing limit order was filled.  I set it at a retracement level.  The market moved through it.  Here is my latest after about 5 minutes in the market starting at around 11:31am and ended with my fills at 11:36.

OK!!  Wow.  Somebody ate something not right at lunch.  Market took a nose dive at 12:30.  I was right at the beginning trending with the market.  Then the market swung against me.  Took a bad trade and make a bigger bad trade.  Had to get out when ES hit +9 (from + 30).  Then came back up through good disciplined trading in high volatile markets.  Still not sure why the ES was moving this much.  Maybe the news of the vote or an estimated vote count on the bail out.

Done for the day.  Lunch time was exciting and crazy!  Speculation of ES is not for everyone.  You gotta have patience and be able to pull the trigger on both profit and loss sides.  Some day, you have to take a loss.  I have only posted about 2 days of P&L, but tracking the entire month of June and July put me at +2k.  Hopefully the last few months have let me refined my strategy under different market conditions a bit better.

Final count for the day.

10/2/2008's P&L in Simulated Environment

ES Margin Requirements

CME just increased the margin requirements for the E-mini.  It has gone up to 2532.00 per side and x2 if holding overnight.  E-mini is still my favorite vehicle  for trading.  I am continuously refining my strategy.  I use a SIM trading environment that is pretty good in giving me the order statuses.  I am also only using 1 lot orders to limit my exposure in the ES market.  Like I said in my previous posts, the market can swing 20+ ticks against you.  I read that one person lost 1 million while holding 700 ES in about 3 seconds.  So key to my trading is limiting loss.  As any trader, you are looking for lots of gains in pennies while trying to avoid nickel size losses.  So far, pretty good.  Up 2000.00 today.  I will keep a journal of my performance starting today of my trades.  I am not going to post any fills or time and sales information.  But definitely, for my own interest, keep a log of my strategy's P/L on the simulated environment.

Options

A lot of people I know has started to trade options.  It is a good way to make A LOT of money in this volatile market.  Problem is that people tend to open one sided positions.  That is a recipe to lose a lot of money.  As any trades, hedging is key – especially when you are dealing with derivatives.  So how should I make money when the market is swing 3-500 points a day (probably more if you did the math from day low to day high instead of the open to close delta)? 

You can hold (long) puts or calls, or you can write (short) puts or calls.  The combination of these can limit the losses; however, it will also limit your gains.  As volatility increases in the market, the premium for puts and calls also increase.  As a writer of calls or puts, you can make good money from the premiums.  However, the market can totally break on you.  But I think it is still an advantage to write naked puts on some good companies.  Here are the reason why:

1)      In this down market, put premiums are high, even with front month expiries. 

2)      Solid companies that are knocked down can, in the long term, rebound.  Think companies like GE, COKE, WMT, IBM, etc.  Remember to do this research before picking what stock to write naked puts. 

3)      If you are assigned by the exchange, the premium you got from writing the naked put let’s you buy that stock cheaper than the strike.  I recommend writing a longer expiry put since the time decay with high volatility will give you the most premium. 

4)      When you are assigned the shares, you can then turn to covered call write and hold the shares for long term investment.  Remember, we are not traders.  We are investors.  There is a clear line that separates a trader and an investor.

Strangle or straddle are good strategies to use in this market as well, but the premium on the two sided trades can get pretty high and you pay 4 commissions total for these type of trades.