What’s wrong with being wrong?

Jesse Livermore was famous ’cause he was the king of the trader back in his time and made millions; but at the same time, he also gave it all back.  Without doubt, his famous book, “Reminiscences of a Stock Operator” by Edwin Lefevre, contains treasure of trading wisdom which are timeless.  Nevertheless, the most important lesson I took to heart is from Chapter XII where he described how he gave back nine-tenths of his stake (in milions).  Here is an excerpt from the book:

“It seems incredible that knowing the game as well as I did and with an experience of twelve or fourteen years of speculating in stocks and commodities I did precisely the wrong thing.  The cotton showed me a loss and I kept it.  The wheat showed me a profit and I sold it out.  It was an utterly foolish play, but all I can say in extenuation is that it wasn’t really my deal, but Thomas’.  Of all speculative blunders there are few greater than trying to average a losing game.  My cotton deal proved it to the hilt a little later.  Always sell what shows you a loss and keep what shows you a profit.  That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.”  (from Chapter XII)

In his defense, Jesse said he was the victim of a magnetic personality with a brilliant mind.  Somehow, he allowed his belief in someone else’s fundamental aspect of the cotton trade to supersede his intimate knowledge of the price action which was telling him that his timing was very wrong!  Yet he kept on averaging down!

The lesson I learned from this chapter is that you must always open to the idea of being wrong at any point in time during your trade.  There is no if or but.  The answer is very clearly displayed to you in the price action of the market.  If you don’t have a profit after you are in within a reasonable time, you are wrong!  Simple at that.

So, what is wrong with being wrong?  NOTHING!  If you are wrong, just admit it, close your position and move on.  It is only wrong if you refuse to admit that you are wrong.  Guess what, you can always go back in if market condition change and your stock begins to show sign of movement in the direction of your thesis.  It is just that at the time you took the trade earlier, the timing was wrong.   Like I said before, sometimes you can be lucky to defy your being wrong and get away with it; but in the long run, you will pay the ultimate price- a decimate to your portfolio.

Now you know why I sometimes acted kind of “jumpy” in my trades.  In and out, in and out, and in and out.  But overall, I make money.  Perhaps not a 10 baggers or a big-hit wonder; but enough for me to enjoy my time at the market.

You see, there is nothing wrong with being wrong.

Good Hunting!

With such lofty valuation even after a heavy haircut from the last 2 weeks, I think FB is still over-price giving current economic environment.   FB already announced reduced revenues forecast right before IPO; now if we are heading toward another recession (or is it deflation?), where do you think the advertising dollars are going to go?

Google advertising business model is far superior than FB ’cause people who searched for items have high probability of buying the items they are searching for.  Meanwhile, ad popping on FB while people just wanted to chat with their buddies are annoying, especially when those ad is designed with attention grasping “LOOK AT ME!” graphic artworks.

With such poor fundamental support (my opinion), I don’t see any counter-force movement to stop this waterfall price-action any time soon.

Therefore, albeit a bit late, I’m shorting FB by buying the July 28 Put options.

In case I’m wrong (which happen often), I will close my put option if price action exceeds yesterday high.

Good Hunting!

Ooop!  I meant Bullish Hammer.

The bullish hammer candlestick bar (see below daily chart) is an encouraging sign for a possible cessation of the current downdraft.  Moving cash into equities to take advantage of the current corrections of DDD and  SSYS to rebuild my positions for the 3D printer hunt.   I also bought some SZYM to rebuild position for this one as well.   Still holding 60% cash.

Good Hunting!

Did you see what I’m seeing in the weekly EMAN chart below?

I’m “betting” that this little guy is going to go bronco crazy and jump over the fence in no time.

I like the story behind this guy because of their introduction of the world’s highest resolution, full color microdisplay.  This new gadget will be introduced at next week’s Society for Information Display (SID) conference.  Hopefully, it may sparks interest by then.

Btw, what do you think of the idea of “mobile” home theater?

“I want one! I want one!”

Yes, I bought some starter position here.   Oh, this is NOT an advice to buy.  This little guy has small float and is thinly traded; hence the ability to jump like a madman- up OR down…

So go the SPY mid-Keltner band being tagged by today up bar.  Now, will price go the other way to avoid being tag.

As of now, price action is still below the mid-Keltner line.

Below daily chart show the SDS mid-Keltner band being tagged and now price is running back to the upside.  Btw, SDS is the 2x inversion of SPY.  Notice that the mid-Keltner band is also close to the Fib retracement of 38.2%.  To me; that is a double confirmation of support.   Yes, I’m long SDS at current price action with a stop at a bit below today low.

Below is the SPY daily chart

Good Hunting!

How many of you have a trading style you called your own?

If you have one, congratulation!  If you don’t have one, you need to work on refining your trading techniques until you start making money.  Once you do, you have your own style.

When you see somebody you like to read on the blog posts a stock idea, do you follow the suggestion and cross your finger and hope for the best?  And when this person proclaims that he is loading up the truck on this pick he posted, do you add more based on this information?  If you answer yes to both questions, then you don’t have a trading style of your own.

While there are benefits to be had in seeing other people posts their stock picks that comes with their argument and thesis, the contributors who posted their picks (either buying or shorting) usually have their own trading goals and loss limit based on their risk tolerance and the “size” of their portfolio.  I said “usually” because there may be a few out there who post their pick with undying belief on the stock they love.  In other words, it will be like following a blind man with nothing but “faith” that this blind man will lead you to salvation.  And if you happened to win big based on this blind faith and was lucky to cash out; congratulation, you just won the lottery!

In trading, there is no short-cut.  If you don’t want to spend the time to study the technical analysis (TA) and go thru the trials and errors in finding the right TA that works for your personality as well as tailor-designed to your individual strengths and weaknesses, you have a high probability of being part of the 90-95% of the people who failed in trading.

So, how do you start?  By taking a first step in reading a trading book, trading video, or pay for a live seminar to learn the trading skill.  You won’t become good with the TA right off the bat; but your tenacity, dedication, and persistence in “applying the TA” will carry you to eventual fruition.

It took me many years to discover my “hunting” trading style.  Just because it works for me does not necessary mean it will work for you.  My trading skills evolve over years of trials and errors and now they become part of my “habit”.  These skills, like averaging up and dumping my position as the sound of a hiccup without a care if the stock is going to take off without me took me years to refine.  Yes, sometimes, I do give up runner who ran so fast that to jump back in will be suicidal.  But at the same time, I also locked in many profits that could have gone back to zero or worse.  Overall, from my personal experience, the benefit outweighs the cost. But these are very personal trading skills that make me who I am now as a trader.

My point here is that you need to find your own style if you don’t already have one. You are going to pay your due regardless; then why not learn something from the expensive lesson by being more systematic in your trading execution.  Trade with a plan based on what you learn from book, video, or live seminar.  And from there on, you will begin to evolve as a trader by continuing the process of finding your own style using the lesson you learned from each trade you made.

Instead of saying, “Damn, I thought trader A has that pinned down.  I wonder if trader A is still holding the position.  I’m hurting and I don’t know what to do?”

Going forward, you want to say thing like,

“Damn, why did I not follow the signal to sell my position?  What should I do to stick to the gun?”

or

“Where should I put my stop so that if the trade bombed, my loss will be limit?”

or

“This stop limit is too much for me, I’m going to pass the trade”

or

“Trader A has this pick, but from my interpretation of the chart, the volatility is too much for me.  I’m gonna pass.”

or

“Trader A must be crazy, no way I’ll take that trade when it is already up so much.”

or

“Trader A pick looks good; but I will use my own stop loss and profit target for this trade.”

In summary, if you don’t already have your own trading style or working on one, time to get busy.

Good Hunting!

Despite the muddy road today, the mule wagon (of equities) was able to gain an inch.  Until the day comes when the mud disappear, I’m afraid there will be more hardship ahead trekking thru the wetland of Mt. Fifth.

Because I was giving the opportunity, I unloaded my baggage (now holding 80% cash) without injury and took to the tree to wait for sunny day.   Oh you can call me anything you want; but you ain’t gonna make me walk thru the messy wetland when there is a chance of quicksand awaiting to swallow you whole.

Yes, safety comes first.  Believe me, when the sunny day comes and the wetland becomes dry land with roses lining up the trail, I will be running to the top of Mt. Fifth faster.  Yes, I’ll probably have to pay toll for running on sunny day but I bet I can pick up some gold nuggets along the way.

Regardless, my fellow travelers, I will see you at the top of Mt. Fifth waiting for you with ice-cream in the freezer. 🙂  And travel safe!

The weekly Dow Jones chart below shows that the Feb 2011 support still hold and the reversal green bar actually expanded a bit more!

For those not familiar with Elliott Wave theory, the simple explanation will be that the Elliott Wave has 5 waves pattern.  As you can see in the weekly Dow Jones chart below, I tried, to the best of my understanding, identify the 5 waves pattern in the trend.  Also, you can see the A-B-C wave patterns right after the 5 waves patterns; these  A-B-C wave patterns are  the corrective patterns.

Now, as of today, my weekly chart shows that the price-action is finding support from the Feb 2011 high.  This support can be significant because it can be used as an “excuse” to spring board the start of wave #5 which can end up where I put the double ?? (my extrapolation only, of course).

Now, if you don’t agree with me; that is your right.  If you want to believe that the market will fall off the cliff, that is certainly your freedom to do so.   Meanwhile, I’m going to see if my thesis will prove to be correct by watching if the weekly bar continues to make new higher high and higher low from here.

Regardless, I will see you at the top of wave #5.  Ice cream will be on me when you get there. 🙂

Again, the above is my opinion only.  Just so you know, I don’t have any “emotional” attachment to my opinion. Meaning that if the market takes a dump tomorrow; I may as well come back with another chart showing why the Dow Jones will be heading down the cliff very soon.  I just need to find another “theory” out there that will support my thesis.  You see, opinion is like a pin holding the onion; the darn opinion (oop! I mean onion) is just too heavy for the little pin to hold it in place!

Good Hunting!

Based on the chart below, I’ve to conclude that enough force has stopped the continuing down motion.  If price action can take out the high of yesterday doji candlestick bar, I believe we may find the bottom.   I moved 20% into equities today.  Still have 50% cash.

Good Hunting!

Pardon my pessimistic view; but I believe, today, we are only entering into the “eye of the storm” for the moment.

The woe of Greece is far from over; and we have yet to feel its domino effect that will impact Spain, Italy, and the rest of the financial systems around the globe.   Again, the G man may under-estimate the ramification of Greece failure the way they under-estimated the failure of Lehman Brothers.  Suffice it to say that defensive strategy must be planned ahead such that it can be executed in a moment notice.  If you are overloaded in illiquid position; hedging plan will be your protective shield.

For trading strategy, I will place a buy stop above each SKF daily high.  In other words, if SKF continues to have a lower low and lower high, I will move my buy stop to each day high.  In any event when a surprise news hit the news feed and SKF shoots up; I will get fill and be long SKF even if I’m not looking (or too slow to react).

Also, I may buy some JPM put option giving their current portfolio predicament .

But then again, I may be overly-pessimistic.   Nevertheless, being prepared for the worst case scenario can never be overstated under current financial climax.

Good Hunting!