Reflections.

After making my post yesterday. I kind of glorified my little decisions through the day. Yes I made money and made some great calls about short entries and overall movement for the day, but I'm skeptical about my own skill.

I had a good long talk with Giovanni yesterday. He worked at a 330 million dollar hedgefund this past summer so he has plenty of perspectives to represent about trading. 

My conclusions and ideas about trading: The market is made up of players in a pyramid scheme.Remember the old food pyramid, with a triangle for fats/oils at the top. Imagine that.

In the top triangle, are Ibanks

Sharing the level underneath are Market makers(specialists, floor traders etc) and Hedge funds. The later would have more real estate at this level if it could be ideal.

Underneath are mutual funds foreign long run investors, prop firms. 

At the bottom are online brokerages and their constituents. Note: The sections are divided by volume of people in each category, not by %age share of total market cap. I have no idea how to represent the market cap. The market makers are the ones who always win of course. My ideas in trading are biased by me being indian. No really, read GAMES INDIANS PLAY. It'll explain to you why if you are ever in a business transaction with an Indian odds are you are losing. I can't help it, I was taught these things since I was young. The point of this is, it is my opinion that shifts in the stocks I trade are rarely due to news. Its a psychological war between market makers and traders like me to make money off of day-to-day price variances. This is, afterall, what a true daytrader like myself, and the rest of GOTS are trying to do. This is why I recongnize the fake breakouts. They are attempts for the market makers to convince people that the stock has reversed. False, there is no news, a wave of buying has come in so that market makers can get nice short entries. The higher up you can make the stock tick, the better your entry for a short. Simple.

Conclusions with GIOVANNI: Everything I write on this blog is complete bull that my self-inflated ego vomits out everytime I make a winning trade. Thats right. Look at all of the quotes people have about trading. When your POS stock begins breaking out in your $10K short, you aren't quoting Warren Buffet anymore, you're hyperventilating into a brown paper bag and taking pointless puffs of your asthma inhaler! Even Giovanni's boss, the parter of the fund, loved reading self help books on trading. I have nothing against the guy, he's actually managed to keep his fund afloat in this mess. Good for him. I'm just saying that I have plenty of theories about how the market works. I could easily be wrong. I know what I see is profitable, but I have no idea if I'm my logic is what is going on. If you see an inefficiency, exploit it. That is what Muddy does. This is what I do. I just like to explain why I think it worked. The point of this post is, my explanations could easily be wild theories.

Hell, Muddy, probably realizes its pointless to blog like I do. People make a winning trades, move on, just realize why it worked and try it again the next market day.  

This is a very funny post, in my opinion. It feels good to be breaking even after months of being down.

Anatomy of a Day trade

AS my fellow bloggers Yng, DV, and Il torello did yesterday, I too posted a chart with some comments on my thoughts. I particularly enjoyed Yng and DV's Anatomy of a Day trade. Here is my own below.

I kept a text file open all day, and simply timelogged my thoughts throughout the day. They are candid, unedited thoughts, often typed very quickly as I might have been in class or more interested in following a stock then typing my exact thoughts. I have no reason to be fraudulent. I was denied the internship for which I started this blog anyway, so I have nothing to prove. I wanted to share my thouhgts on how I analyze stocks I daytrade and keep track of which ones of my ideas actually hold up. You'll notice interesting things like at beginning of the day I wanted to do a long scalp on C, while for the day, long on C would have been awful.  The subject of my log is only C. Keep in mind I am already sold short 1k shares from yesterday at 3.98.  I have made in bold my best time logs. Here is my time log copied and pasted:

9:44- just missed my chance to flip positions. realized 3.94 that it hit resitance at 3.90 and it was time to go long. Currently 3.95 lets see if it faces upward resistance. The big open up this morning looks like it could be an attempt to avoid the inevitable tank which happened last night.

Had I more trades(though I do have 3 as of now, not sure if I can use them all on C) I might have flipped. 

9:46- looks like its trying to bring 60dayMA down flatlining at 3.95. Resistance at 3.96 break.

9:47- I realize I am doing way too many realtime updates, there are many more minutes in the day left.

9:50- this resistance is pathetic, and the rise is too. cues me to think this is going to be a big down day.

9:56- starting to think more and more that 3.95 is going to be your best short entry for the day. Wow thats a bold statement, I'd feel owned to be wrong.

10:12- Just back from shower, and the breakdown occured causing definite confirmation of my beliefs. Wow, its amazing how well today is working out. I guess I feel insync with C becuase I have watched it so much. Currently unrealized P/L open is 160. I am very happy that my entry is few cents above my posted entry. P/L now 180.

10:15- I have class at 11. My position is doing very well. Dow is sliding just like I expected(post about this idea later). The general market slid should cause the trop in confidence that I

m looking for. Right now, I don't see a bottom. Im not getting stopped out of this very nice trade. I'm going to walk away and check via Ipod in class.

10:17-look for breakout type buy in soon. This selloff has gone over too many percentage points already. ITs time for the day traders exit. I'm a long short today. Let's see C bleed. Red is green for me.

10:22- chatting w/ rep. considering closing and reshorting to protect gains and make more off the anti-selloff, will post convo. P/L hit top at 280 at price 3.70

10:19 lakhanin: Hi

10:19 lakhanin: I have 3 day trades left.

10:19 Rodrigo: hello

10:20 lakhanin: If i close my short from yesterday on C, will I be able to use my funds to re short C later?

10:20 lakhanin: Its a question about having the necessary funds I guess

10:21 Rodrigo: yes, but you would need to contact us to place the short later. Additionally, you won't be able to close the "new short "position today

10:21 lakhanin: ok, is that becuase it is on C which I have already traded?

10:22 lakhanin: its not becuae of PDT right b/c i have 3 trades

10:23 Rodrigo: It is only because you can not day trade with proceeds from closing a position that was held overnight

10:24 lakhanin: yea, that was my worry. Thanks.

10:24 Rodrigo: you are welcome\

10:27- the air smells like a mix of feet and Harvest cheddar sunchips(courtesy of my roomate... breakfast of champions) As we come near the end of the first hour of trading, expect sideways action as volume settles. NIce resistance break of 3.70. Currently @ 3.68. Very nice sign for my short! Will need to watch for barack giving an address, that could easily send things the other way. This is the news I will be watching for.

10:31- a moment worth celebrating. I am finally breaking even on my account for the first time since December. My account was down over 37% and I managed to work my way out. Keep in mind this is all still unrealized gains. P/L is 349.

11:12-made it to class slightly late. C at 3.73. Its hard to focus on price action etc. while learning discrete math. Not sure how the short stands, but i'm going to walk away till class ends.

11-23- wow, C is following DJI. exact scaled charts

11:29-dow will ned to break 8k for lower lows in C

11:30, bid ask just were equal. something big is about to happen, i think its a buyin.

11:55- out of class, starting to get nervous about profit taking. wish I had cnbc to tell me the general market news and what obama is saying. When you trade what everyone talks about it there is so much more pressure to stay ahead of the curve. Only now realizing this.

11:59- just realized my math prof has facebook. Roflcopterz. Seeing some naive cycling/channeling in C at the moment. Resistance at 3.58 is strong. I've witnessed two attempts to break and dow looks like it could make back some losses having turned away from 8020's to 8040's now.

12:12- I've started to think that we might have seen C's lowest lows already. It just hit 3.70

12:13- nevermind, i think its going to be and EOD fade, here we could see a nice run even to the 3.80's showing reversal. It will be fake breakout. Need to add some longs to take profits from before the EOD death happens. DOW will not end above 8k. mark it as my opinion.

12:20-put it this way, it takes a ton of other shorts for the selloff that happened before 10:30 this morning to occur. I know they haven't covered yet. WE are all waiting tocover.

12:47- not happy with this run, far from the 60 day MA and a new recent high at 3.77

12:58- if i was over pdt, i feel like I would have sold way before. But i'm not over and I have no ewya of telling.

2:33- Through my class on Financial markets and there was a solid sell off after the brief breakout. I must admit, the breakout was killer. Much better a real one then that yesterday. I'm sure several were spooked.I shouuld identify an target exit now since its bounced of lows for today more than once. I want DOW to end under 8K, but i'm not going to but my money there any longer. Look for me to cover soon.

2:56-i've stopped watching a lot. dow looks like its breaking off highs. IT won't rise, question is when its going to decide to let everyone know 8K this week is no good

3:07-final hour of trading. At this point i don't care if my prediction is true or false, i'm closing my trade before the weekend. I'm going to cover REAL soon, both on my real account and youngmoney account.

3:21-8004!!!! break BROKE!!! as i wrote this

7998

3:21- this is what i wanted all day!!! bleeding to follow

3:25-can it hold under 8k?

3:30- holding 7982 at the moment. C consequently broke LODS. 3.57.

3:38 nlods at 3.56 I think i should cover before the squezze leaves me w/o profits in the .55 range

3:41-AHHHHH i covered at 3.59, i made the wait not worth all it could have been. but hey, my net PL on C is now 10% of my net worth.  Much remains to be said about perfect exits as tough as these. I really did not want to get squeezed into the 3.60's with this trade. I know many more are anxious to cover their trades. I saw the DOW squeeze and pulled the trigger on my C trade. Very nice. Green on my account and very green on this trade! Celebrate.

3:55- i've watched the markets enough. I don't care if DJI actually ends under 8k. It is at this exact moment and I have closed my trade. Today was a success.

the downside to trading liquid stocks.

With all of my recent involvement with Citigroup lately, I've picked up some observations about price/volume and 10/60 crosses relative to future movements.

These observations are compared against all that I know of momentum stocks, and illiquid penny stocks. First, expect these guys to tick. With so many shares moving often, no one is satisfied with sideways action. Next, sell offs and breakouts are not secure for long! This is huge. If you are sub 25k "day-trader" then you need to be at the screen watching price/vol. Take a look at how C cycles downward with progressively lower lows after 1pm. I knew my short was valid. Initially my stop was at 4.05.  This stop was placed on the uptick, right after I entered and right after the 10/60 cross. I got more confident in my position as time passed but when I first entered, to guard against break out it was a great decision. I saw the resistance at 4.03. If it broke, I could have lost much more since I am short, and C had a great day just yesterday. Well after the two cycles I decided I could layback. So, when the stock brokeout  past 4.05, I knew what the market was up to. C was going to end the day down. When I stock is due to be down, the best way to end the day profitable is to short. Luckily I beat the crowd in at around 12:30. So, I sat and watched while the stock cycled and sure enough, it hit BOTTOM after the best breakout of the day. A few months ago I would have cut my losses at 4.04, or maybe during the second breakout. Hell, I probably would have flipped positions and went long. These are classic mistakes. This is why fewer people make money than those that lose in the market. I hold panic buys and sells accountable.

Today was special because C was cycling. The strange part was that it was unbelievable predictable. As usual, had I more trades, perhaps I would be up more. I hope nonetheless that I would have done the o/n night hold I am currently with. My shares were shorted after noon at 3.98 and market close was a nice 3.90. If you checkout after market you can see the slide off of 3.88 to the upper 3.80's. We might be up for a gapdown tommorrow, but news will send this struggling spaceship flying if Barack decides to share his plans about TARP and additional funds that have been mentioned.

Overall, I have nice unrealized gains. C will make them up in no time since it is so liquid. Profit taking at the right moment tomorrow will be the challenge. For the first time in a while, I will be on top of general market news. It will destroy my confidence to end up red on this trade. So the real question is... should I put a buy stop at 3.96 to break even on commissions?

A decent trade

I had a sudden urge to begin trading again today after my recent breaks yesterday. I think it is because of my recent luck with a poker game, and since I haven't been able to gamble with chips, I've been wanting to play the market. I couldn't get myself to do any serious research though because I had various engagements beginning at 9:15 this morning. Nonetheless, as I finished up and had breakfast at around 10:20 I decided to open up ye ol' dodecaon of charts I keep to see how the market was doing. 

Behold the dodeca!

First, a gap down on the DOW! This made me smile. The funny thing is, the media doesn't even care anymore. Below 8k? What else is new? All the headline

s were about job cuts and decreasing expectations for corporate profits. I don't really keep up with general market sqawk in terms of trading, just out of interest. There are those panic days when financials and baskets move with DJI. Those are generally profitable, and thats why I do it.

Second, I loaded up the usual interests: ABK, FMD,PMI,DSL, BKUNA, FIG, and the Citi's. I remembered the latter two because of Ramta's tipoff of C's recent volatility. Nice hint. I began watching C closely. My immediate impulse was to short at the 3.20's. It was easy to borrow, there was sideways action and this was my hunch. Good as hell thing I didn't. When I saw the spread go to 0, I knew shit was going down. By now I had left the bottom of lenoir and was waiting for my class to begin. It moved a 3 cents, but thats all I was looking for. I pulled the trigger at 3.23, and sat back as 381 lecture began. Today was Quantifiers and Predicates. Also the first homework was not due today, as most of the class expected. While they breathed a sigh of relief, my heart beat grew faster. C was now holding steady 9 cents higher than I bought. I don't gamble less then 1000 share positions. Do the math. Then, it really took off. I could only imagine giving the alert of the GOTS boys, but I'm sure someone else caught the 3.20/ask bid equivalence just as I had. My thoughts on this are that a huge increase in volume set the dealers momentarily back on where to price. But, I honestly have no idea.

Well, it hit a high around the 3.50's. My experience told me now was the time to sell, but I held on the hopes of making this a weekend hold. I used trailing stops and thought that 3.39 would be enough breathing room for the inevitable selloff after this 10% breakout. WRONG. You win some you lose some. C is currently holding steady in the upper 3.40's. 

But hindsight is 20/20. Today I made money, that is all that matters. I'll save my remaining trades for next week, but I really want a weekend hold. Perhaps something else will catch my attention before days end.

On trading algorithms.

No new trades. Sitting on FIG instead of overtrading my gains. New semester, new classes, and I would like the have the morning free before I commit the time to researching some risers for my new strategy, commented on by MUDDY in my last post.

I lately had two interesting conversations regarding the only studies I use while trading. My indicators for entering a trade have almost always been a combinations of experience enriched price movement and the trusty 10/60 day moving average. I will note to look into bollinger bands, per Muddy's note, as an attempt to diversify my technical indicators. Most people also find despair, yes despair, in the fact that I hardly allow myself to find out what exactly a company does before entering a trade. When a known riser takes off premarket, all you need are those 3-5 ticker letters and quick fingers to get the trade in.

Anyway, I always describe the 10/60 day moving average study set to people as a set of ploted lines, with the 10 day moving average being sinusoidal WRT the 60 day moving average. Now recently I explained this to two people Amit and Steve, who both happen to be engineers. Despite different specialties they both immediately responded wanting to call the 10 day line a Fourier transform of price/time. Interesting. Amit went further to ask what I thought the number of cycles was. Great question. AS I pointed out after I talked with Steve, I think that answer maybe 3. That right there, is easily exploitable. Forget scans, complex algorithims, what if funds were distributed across a number of tickers and bought or sold(to go long or short) depending on real time 10/60 crosses and then bought/sold on the anticipated nodes for the ticker. According to my theory this would be about 5 solid trades per day/ticker. WOW. Worth looking into for its mere simplicity. Who knows, maybe this will all turn out to be a commonplace fact about how 10/60 really works, but I haven't ever heard anyone talk about it.

Where I take this realization about 10/60 to is the efficient market hypothesis. I now feel I have the necessary proof to battle this idea I always thought was a bit immature. It was developed before the internet, so for it to still be vigorously debated today shows just how applicable it still maybe. For me, early one stocks were not about news, and price of a stock was not as good of an indicator as a 5 minute plotted chart. News is said to be something unknowable in present but to affect fture price. In behavioral and technical trading indicators are known to those who choose to note them, and definitely affect future price. My belief is that read if you dare "news" has been created due to development in communications that allowed real time quotes and the online day trader to be birthed. Information spreads quick nowadays. Plus with the influx of traders trading securities today behavioral analysis is alive and well as fundamental. It is in my opinoin a separate field from techincal analysis too. There is no luck involved with patterned observations. I have yet to find the long run to prove my committment to how dead EMH may be, but I'm working on it. 

I find great problem in the assumptions EMH takes too. It is because a great number of unskilled traders will over react and under react that profits will be made. The decisions of these many people cannot be admitted to the "noise" category. I take the opposite view. 

Who knows. As I pointed in my last post. Maybe market makers take those observant folks and allow them the same profit potential as they themselves in an attempt to fool the foolhardy into losses. If this is the case, we are talking about a different type of stock market then many ever expected. But hey if the collapse of our economy can be traced back to the buying and selling of a single security, mortgages, who is to say I am wrong.

I am curious to hear the EMH view.

FORTRESS INVESTMENT GROUP

Ticker- FIG.

I recently hit a century on the trading pitch. I entered FIG at 1.20, had a weekend hold after an incredibly friday. Held Monday, and sold on the Tuesday morning breakout. My exit was perfect. I saw the percentage gains, knew a sell off was inevitable after the near 35 cent breakout in just 2-3 minutes, and got a full fill at 2.38. This was a near 100% return. I'm really proud of the way I handled the movements of the stock between the point I bought at and the point I sold. The path was not direct. As always buying and selling during panic breakouts or sellouts is not a good idea. You can significantly add to your loss if you close during a panic. Mostly this applies to sell off's, I will explain why.

When I began trading around JUNE. The hot strategy was "green to red" and short. Playing a stock long seemed inexplicably complex. "Red to green" didn't always hold up, so I wasn't sure how to tell if a stock was ready to rise. The "green to red" strategy was made popular by timothy sykes, and it was transparent that many of his minions had infiltrated GOTS and were trying to spread this gospel. Muddy, being the brilliant trader her is, stuck to his key phrase which is simply waiting for confirmation on a stocks predicted path. I had not made up my mind back in August, but I was certainly only playing shorts for the most part. It has become clear to me that the nature of many day traders too, was that shorting was the best way to some quick gains.  Market makers, more experienced by definition, can easily respond to the way the masses are thinking. After all, this is their job. It seems like the pump and dump is losing it's strength. Stocks like SIL and FEED and COIN aren't dumping as easily as they have in the past. This is expected. Any profitable strategy in the market will become apparent, be exploited till the point where it becomes common knowledge and thus harder to succeed in. I'm not saying pump and dump is dead, but if you've been around watching pennystocks as long as I have, you'll know there is emerging a strategy to respond to pumps and sell offs that is PRIMED for profit. 

There has been a huge increase of pennystockers courtesy of Timothy Sykes. Most don't know what they are doing. When they short, you can gain. Enough said.

If you wish to discuss this strategy further, and are noticing things as well. I'd love to talk. lakhani.nirav@gmail.com

try try again

So after a sucessfull trade. My last friday with FIG and ABD were off the mark. Both positions ended in losses. ABD, was a good excited considering it ran quite a bit that day. FIG could have been held longer but after seeing multiple failed attempts at resistance I closed it out. If you saw FIG today, you have no idea what the regret feels like. However the regret is easily balanced by the sense of pride I have for exciting that ABD run.

Perhaps the real lesson from this is just being able to flip my position or read stocks to begin with better. A nice read on FIG today when it was "falling" and shorts were entering turned out to be a fakeout with a quick .20 rebound. Its things like this only expereince will help with.

On to the list

IFX- 1.10 watch for a quick morning fade. it might be worth it, whats sure is it will be very volatile.

GMO-1.38. had a morning fakeout, might be a riser.

ABD- 3.92, who cares if i can't get 1k shares, i can watch ABD with some experience under my belt and try for it again.

PWER- 1.35- a multi day riser.

OCNF- 3.89 a shipper in the higher range, but I know these low floats have a tendency of falling.

VTSS- .45 just going to put my opinion on this pennystock. Looks like a valid rise. i'd long.

IVN- 3.27. long at open. looks legit. sideways is my call.

URRE- .92. same as IVN

MEG- watch at 3 break. tested and failed, but thats always a good sign with these risers.

Enough for now. Patience and good rationing will make this prep worthwhile tomorrow.