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Monthly Archives: April 2012

Short NFLX with June 85 put

This one is easy, there is no presence of “external force” moving against the original downside motion.  I’m going with the flow…

Good Hunting!

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Short AAPL with May 18 $600 Put

By looking at the daily chart, you can see the obvious presence of the “external force” moving against the original up “motion”.

Since I’m in the money, my stop is at breakeven.

Good Hunting!

Ps. My previous AAPL short with May 580 Put was closed before earnings report; I knew better than to gamble on earning report.

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Not all stocks are created equal…

I stripped my portfolio to the barebone core position to lock in some profit, cut out the losers, and raise cash to 45%.

Of course, I’m keeping DDD, SSYS (they seem to be UNSTOPPABLE!!!) and a few other choice selection.

With a “new industrial revolution” postulated by The Economist’s article, I just don’t see how any meaningful correction can take place with DDD & SSYS.  My take is that there are many buyers on the sideline waiting to jump in at any opportunity.  I took profit late last week on my added position in DDD & SSYS but bought them back early this week ’cause the correction I was hoping for did not happen.

Between DDD & SYSS, I can see SSYS being the stronger mover due to the fact that they are merging with Objet.  As an anticipated IPO, I’m sure many were looking to buy into Objet.  The fact that there were no IPO but a merger, to me, is a Godsend for those who doesn’t want to pay thru their nose with the IPO price.

Here is “my” vision…

Imagine factories across the US installed with hundred (if not thousand) of 3D printers… you can see row and row of these printers in different sections of the factories.

Customer 1 called, “I need 3,000 of widget 1 and I need it tomorrow! Can it be done?”

Factory order taker, “I got 500 printers open up this afternoon, I can retrofit these printers to crank out your widget.  Will end of day tomorrow be good enough for you?”

Customer 1 response, “Fantastic!  PO (purchase order) is on the way!”

Voila, just in time manufacturing capability is becoming available for items that normally take months to make.  Overstock inventory will become a thing of the past.  Instead of printing for prototyping, 3D printer can actually prints finished goods!  This is called additive manufacturing.

With the power to keep inventory under control and at a minimum, can you see how “valuable” this 3D printer technology can be?

SSYS may have the potential to be a leader in this regard… but what do I know, I’m buying both DDD & SSYS to cover my bet.

Needless to say, I added more SSYS today.

Good Hunting!

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Chart reading and Newton’s First Law of Motion

Chart reading can be simplified into two steps process by following Newton’s First Law of Motion:

“Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.”

The first step is seeing if price is remaining in the state of motion.  In other words, is price trending?

The second step is seeing if there is an external force being applied that stopped the price from continuing its original path.

Basically, if you answer “yes” on the 1st step, there is no 2nd step.

Nevertheless, if you answer “no” to the 1st step; then the matter becomes a bit more challenging.  The burning question will then become: “is this external force powerful enough to stop the original motion from going forward?”

From my perspective, why do we have to struggle thru this 2nd step?  Why not just take your profit first and see how strong the external force is before you get back on the horse to keep going?

If the original motion is strong enough to overcome the external force, then jump back in for the ride.  Yes, you may give up some profit by buying back at a higher price; but once we know the motion is strong, why do we care as long as the trend continues to push forward?

After all, capturing “a piece” of the action is all we asked for, not necessarily the whole 9 yards.  It is those who tried so hard to capture the whole 9 yards that they ended up giving back a large part of the gain or worse, turn gain into loss.

Trading doesn’t have to be complicated.  It can be as simple as 1-2-3.  It is our own human tendency to analyze everything to death as well as our emotional leaning that bring complication to our trading life.

The issue of time-frame.

Yes, while shorter time-frame saw external force in action first, longer time-frame may not necessarily shares the same picture.  However, longer time-frame have a larger risk factor and a much bigger reward that comes with it.  The key question to ask yourself is: “Are you willing to take that larger risk to follow the longer time-frame?”

Some may jump ship from shorter time-frame to longer time-frame ’cause they didn’t want to face the truth of the time-frame that their wallet is suitable for; thus by jumping to longer time-frame, they may unnecessarily shorten their trading life if the trades did not work out as expected.

In summary, find the time-frame that fit your wallet and your style of trading (from minute chart to weekly chart) and stick with it.

Life is simple and so is trading, it is when we try to interfere with our mind that life becomes like a roller-coaster ride.  Perhaps, this is why thrill parks are so popular.  We love to add thrill to our life; but do you really want to pay an expensive fee for the thrill ride in the trading market?

Good Hunting!


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Short AAPL with May 580 Put

In my opinion, QCOM poor guidance is a tell-tale sign.

If price take out 4-17 low, it is going to trigger a lot of stops…

Good Hunting!

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How I save my ass by not…

averaging down on SZYM.

SZYM is in my vision portfolio and, unfortunately, it was going thru a rough patch the last 2 weeks right after the big jump on the joint venture with Bunge news.  In fact, I reduced my position as the price continued to decline to the downside.

The good news is that because I did not average down, even though I still believe in its future potential, I am not being distracted by the downward move.  The impact of the SZYM negative move is inconsequential to my portfolio.

IMAGINE IF I had averaged down, I would be in a world of hurt and emotional turmoil.  It would tie up my cash and probably even distracted me to focus on DDD and SSYS.

This is the classic example of why I don’t do averaging down..  It just doesn’t pay.

Remember, when you average down (or up), you are adding size.  Don’t you want the market to be in a more favorable term when you are adding size?  Like the trend going in the same direction of your trade you are adding size on?

And look what happened to DDD and SSYS, I kept averaging up when the trend is going up.

Statistically speaking, an upward momentum (or downward momentum) tends to continue the same direction until an opposite force come in to stop the momentum.  This is actually the definition of Newton’s First Law of Motion:

“Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.”

There you have it, these three trades (SZYM, DDD, and SSYS) in my vision portfolio are further proof that averaging down (against trend) doesn’t pay and averaging up (with the trend) gives you a better edge.

Good Hunting!

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The Birth of a Techno-Industrial Revolution

3D Systems’ (DDD) acquisition of Paramount Industries just made me realized we are witnessing a reshaping of our industrial revolution.

It is akin to watching the development of Ford T car assembly line production except that we are talking about something far more advanced.

My take is that the technology behind 3D printer and its direct manufacturing and product development solutions is the wave of the future.  It simply CANNOT be stopped.  You are witnessing the birth of a new techno-industrial revolution, so to speak.

SSYS and DDD, the two MAIN players in the field, provide a dose of healthy competition to each other; it will be interesting to just sit back and watch them grow into GIANT.

Needless to say, I added more SSYS and DDD today, again!

As opposed to buying more when trend is down (averaging down), I’m buying more when the trend is up (averaging up).

Good Hunting!

ps. of course, the above is just my interpretation of the reality… so take it for what it is.

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Added more SSYS & DDD at the open

The merger of SSYS and Objet LTD is an auspicious sign.

I’m averaging UP since my base is lower than my purchase price at the open.

2 years from now, you will look back at today price in amazement…

Good Hunting!

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Averaging down- the harbinger of death

Why is it that traders/investors averaging down?   Seriously, what is the main rationale for buying more when you are losing on your trade?

Here is a simple answer: Greed

Here is a long answer: our being uncomfortable with seeing loss and want to make it right by buying more so that we can be “right” again sooner when the price turns back our way.

“Holy mackerel!  It is getting cheaper!  I’m buying more here!”

“It is so cheap here that I’m going to increase my portfolio allocation to this stock to buy more…”

“No F**kng way! how can it be??? The fundamental is so strong!  I’m buying more here…”

“Oh crap! Not again! I’m not going to take loss here ’cause it ALWAYS go back up after I do.  I’m buying more here!”

Sound familiar?

Regardless of the “thought” behind buying more when you are losing in the position; you are actually increasing your risk by buying more.  Simply put, by buying more when you are losing, you are “multiplying your loss” even more when prices continue to go against your position.  Whereas before your averaging down, the rate of loss is steady and all of a sudden, your rate of loss is 2x or more than before (depending on the magnitude of your averaging down) on every tick that go against you.

Size cuts both way.

Sure, many were able to “get away” with averaging down ’cause the prices did come back in your direction even though some had to wait a long time for it.  Unfortunately, this only encourages the bad habit of buying more when you are losing.

“It works!  I’m back in the black sooner!  Wow, I’m making even more money now!!!”

And thus, buying more when losing becomes a tactic to use the next time you face the same situation.  Averaging down will always work as long as the direction of the trade you are taking is trending the same way.  And so the habit of averaging down continues to strengthen while the ability to cut losses becomes even harder to do.

Lo and behold!

A correction against the trend you are trading is taking shape…

“Nah, we are in a bull market! This correction will be over soon, I’m buying more!”

But… price keeps going down.

“Wait a minute… this is not right.  My loss is deeper now…  I can’t take loss here, what if the price goes back up when I’m out.  Let me buy some more here so I can make it right sooner when prices head back up.”

Yet, price keeps heading down… and the loss accelerated as a faster clip because of the multiple averaging down

“Holy Shit!”  Now, fear becomes a dominant emotion.  Paralysis begins to set in.

Price goes thru a dead cat bounce..

“Thanks goodness.  Come on baby!  Get back up!”  Instead of finding a point to get out to reduce the loss from this “godsend” bounce; all the energy goes into “cheering” for the price to go back up to make you whole.

“I think I buy more here since it looks like a bottom”

Price continues the downtrend but with a bit more zest..

“F**k!!!” By now, the portfolio lost 1/3+ of the value.

Need me to go on?

Think about it, if you cut your loss on a planned 5% stop loss in your stock, you probably loss only a tiny fraction of your portfolio when price changed direction.  And what more, you are now sitting in more cash when the market continues its correction phase which may or may not lead to a trend change.

The good thing about taking your 5% loss (or whatever % you feel comfortable with) is that you are now giving the opportunity to buy back the stock as a much cheaper price after witnessing the deflating of the price on the sideline.

And if you truly believe in the fundamental value of the stock and choose to hold on to your position WITHOUT averaging down, you are in a much better position to handle the drawdown against you.  Instead of witnessing a quick dead to your portfolio, you are flowing with the tide of the market like most of the investors out there.

Next time when you are facing a losing position, instead of letting your need to be right “sooner” by buying more, ask yourself if you really want to “increase” the risk of destruction first.

Averaging down may not get you right away, but eventually it will destroy you when you least expect it.  Simply because by the time we realized the market trend has changed, it is already too late to save your portfolio from your averaging down.

Good Hunting!


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