Caught a falling knife: DNDN

Caught myself a falling knife without getting cut!  Look at the multiple time frames of DNDN chart.  Good support, good momentum indicator coming up from below.   After aligning my sight to the knife,  I clapped both hands and caught it.

This is not a recommendation to buy DNDN.  DNDN is a highly volatile stock with a strong tendency to overshoot.  It is simply that I like to catch falling knife with a good story.   If there is no follow-thru tomorrow, I may just take my profit and run; but if the run continue, I’m hanging on for the ride…

Good hunting!

Edit: Btw, since I caught the knife near support, my risk level is low.  My protective stop is a few ticks below the previous pivot low.

One general mistake for most people is that they tend to grasp the falling knife like they will grasp a round stick- surrounding your fingers on the knife.. Ouch!

The proper way is to line up the flat side (not the edge) of the falling knife so it is parallel to your palm; then you slap both of your palms together on to the blade.  Obviously, you may get some minor cut which depended on how well your palms are parallel to the flat side of the blade,  As in any human response to feeling a sting (pain from the knife cut), you should immediately let go of the knife by opening up your palms to avoid a deeper cut.

Market translation:

Instead of just buying blindly because the price of your favorite stocks are down to a level “you think” is attractive (grasping the knife with your fingers), you should look at the chart to see where the likely supports are in multiple time frames (such as monthly, weekly, daily, and hourly for swing trade).  By paying attention to the popular techniques for recognizing support & resistance such as 50ma & 200ma, Bollinger bands, Keltner bands, or previous pivotal lows etc.; you are instinctively lining up your palms to the blade of the knife so to speak.

Knowing when to clap your palms together will require some timing devices; momentum indicators such as Stochastic, RSI, MACD, etc.may come in handy.

Of course, as in all risk taking endeavor, techniques from the study of technical analysis are only to help you increase your “confidence”; it doesn’t guarantee success.  So it is absolutely important that you let go of the knife the moment you feel the sting; in other words, DUMP that loser of the stock if it kept doing down after your purchase WITHOUT hesitation!

Nevertheless, this is not for everyone.  And PLEASE, do not try it at home!  This is only for those who already cultured discipline from years of practice.  If you don’t believe me, just look at all those fingers or hands lying on the floor at the marketplace.  It is quite a bloody sight!

Good Hunting!

I received my Kindle Fire last week and was feeling delightful playing with the gadget.  When iPad came out, I thought about buying one for myself but I just couldn’t justify spending $499 for a gadget I knew I would not use much since I like to do most of the work on my trusty PC.  However, I’m aware of the “mobility” factor for millions of users out there.

Here is why I think the Kindle Fire “may” impact Apple’s iPad sales growth.

1)      Parent with 2+ kids may not want to buy each kid an iPad for X’mas.  For the price of one iPad, parent can buy 2 Kindle Fire (Yeah! one for each kid!)

Each kid can now watch their own movies, play with their favorite apps, etc while traveling with parent (either in car or airplane).

2)      With a much smaller form factor than iPad, taking the Kindle Fire with us wherever we go is a no-brainer.  In other words, Amazon has taken the tablet PC to the next level in mobility!

3)      Amazon has an amazing name brand that associates with reading, video, and music.  Thus, people will more likely buy the Kindle Fire over other non-Apple brand tablets out there.

Will it replace iPad2?  I don’t think so.  iPad2 definitely has its advantage giving its size and features; but the Kindle Fire has the “potential” to take away prospective customers who were thinking of buying an iPad but now prefer the Kindle Fire giving the 3 points I mentioned above.

In summary, by January Apple earning report, we will know if the Kindle Fire impact iPad sales.  And if it does, the price action of Apple won’t be a pretty sight.

Disclosure:   I bought Apple Jan 2012 380 put option since price action last Thursday broke thru AAPL Nov 14^th pivotal low. I also have my mental protective stop near the top of Nov 14^th pivotal low as well in case I’m wrong.

What’s an interesting Sunday reading.  We’ve two opposing views on AAPL that is typical of any stock exchange..  And I’m not about to regurgitate more of what is already out there except to paste another take below:

http://www.fool.com/investing/general/2011/11/13/the-next-battle-over-apple.aspx

10banger post’s title “Apple is under attack” is accurate for AAPL’s price action for the last two trading days although the content of his post support a bearish long-term outlook.  Ben3, on the other hand, continues to support the positive AAPL long term “growth rate”.  In order for AAPL to reach $500, it must have sustainable growth rate in spite of competition.  Don’t forget Kindle Fire which Amazon recently increased its production run by an additional 1 million units.

In my opinion, the best indicator as to future direction of AAPL is not what we believe will happen; but what the price action is telling us.  While the bull and the bear have their own fundamental beliefs in supporting their view points, their beliefs must be attuned to the price action of the stock in question.  Otherwise, by insisting on being right when the price-action is telling you otherwise, I’m afraid you won’t find Mr. Right when you give back all your AAPL profit or ended up in red.

Btw, giving all the AAPL rumors and fierce competition out there, my opinion is that the AAPL next earning announcement will become the pivotal point for future long-term direction.  In other words, I will label that earning date at a gambling bet and will avoid putting any position by then.

More often than not, the reason we overstayed our welcome when the market was being generous was because Mr. Right insisted that there were more.  What do you do when your guest (an acquaintance) refused to leave your home when the party is long over and after you have given plenty of polite hints, I don’t know about you but I can get very annoyed.  I’m sure you will find a more persuasive method that may involve some physical guidance to the front door.  Compare to the market, you are being very polite.

When Mr. Right deluded you to overstay the “profitable” party at the stock exchange, you could get a real KICK-IN-THE-ASS message with some serious injury to your wallet and psyche.  If there is any one true organization out there that can never be accused of practicing discrimination of any kind, it is the stock market (or commodity market if that is your game).  The market doesn’t care who you are, you overstay you will be punished!  No if or but!

“Hey, you can’t overstay when the market open every day!” so you say.  You see, “overstaying” in the market is a term that we human mortal created for ourselves to throw caution to the danger that is lurking in the marketplace. The true is that the market doesn’t care if you overstayed.  In fact, the market LOVES to have you overstayed!  You know why?  ’cause someone has to be the patsy/victim for the piranha that feasts in the marketplace.

How many of you know about piranha?  I remember very clearly even now that in one of the old James Bond movie when the villain threw a good guy into a small pool filled with piranha.  After a minute in the water, only the skeleton of the poor guy floated back up.  Piranha also doesn’t discriminate when it comes to body size.  In fact, the larger you are (like an elephant), the happier they are.  In fact, the larger you are, the more difficult it is for you to escape the deadly grasp of the piranha..

Fortunately, the piranha doesn’t always show up immediately when you enter the marketplace; for they could be busy devouring someone else!  However, they could smell fear!  Yes, FEAR!  What cause you fear in the marketplace?  YES, when you are losing money.  To the piranha, losing money, even if it is a little bit, is like bleeding blood.

Whoa!  How do I keep myself safe from these piranha then!???  Well, that is why we invent the term “overstay”.  When you make money, you are taking food away from the piranha and they want it back!  And when you lose money, the piranha immediately want to take as much of you before you come back to your sense to get out of the water.

I think we all know the “risk” we are taking in the market.  But do we REALLY know the risk?  The problem we all have is that we have a Mr. Right living in our home.  Mr. Right is very good at convincing us that the piranha is only a myth; that if it even exists, you are immune to it.  Mr. Right can also be very convincing about the market direction.  When Mr. Right said the market is going up, the market HAS to go up.  There is no if or but ’cause Mr. Right is very sure about it!  Even when price action is showing contrary direction, Mr. Right can convince us that it is just temporary, nothing to worry about. In fact, Mr. Right even encourages us to buy more since the price is so cheap! Same playbook if the Mr. Right decided the market is going down.

After we become the feast of the piranha and what is left of us remain from the market place, we obviously want some explanation from Mr. Right.  So we look everywhere and after a period of time, we realized that Mr. Right is not at home.

Market opened higher!  No follow-thru from yesterday big down day.  Stocks I sold yesterday were much lower now even with Dow Jones up 100+.  Time to test the water and do some bargain shopping!

Yes, some of these there… yeah, that’s one too.  Wow, that’s one still on sales!  (Btw, I’m only picking those that hit the bottom of the Bollinger band).  While sitting back to enjoy my new purchases, I realized that the plate I used to hold these purchase was getting warmer… before I knew it, it was hot!  Ouch!

What do you do when you touch a hot plate!  You snapped your hand away so fast you could punch yourself in your face if you didn’t get your head out-of-the-way.  I sold all my new purchases without even thinking about it.  Do you think about moving your hand when it is being cooked on the hot plate?  Unfortunately, I didn’t get my head out of the way fast enough so I kind of punch myself in a face a bit.  No worry, no bruise.  More like a slap on the face.

And thus begin another day of trading without thinking much.  Trust me, you don’t want to think much when trading.   Going in=Action; getting out=Action.    It is that simple!

Don’t be like: Going in=worry… OMG!… “Why me!?”… tear forming… keyboard on the wall… endless debate on the wisdom of cutting losses quick… frozen to headlight syndrome… = Inaction.   Meanwhile, you butt is getting really red from sitting on the hot plate!  Ouch!  Why do you want to do that?

Be careful!

And its financial impact could be worse.  SPY chart pattern looked like it is starting the 3rd wave to the downside. If anyone is familiar with Elliot wave, the 3rd wave usually last longer than the other 4 waves.

But it doesn’t matter what we think or opinionated on today action; in my book, today action screams caution.  I moved 65% of my position to cash.  There was no thinking on my action; I just did what my trading signal told me.

You will be amazed at how much calmer you can be when you are not overly exposed in your portfolio.  Your ability to see clearly on what the price action is trying to tell you without all the noise from your emotion/thought improves dramatically.

Remember, the market will always be here; you just need to have the cash to play it.  When in doubt, stay in cash; that is my motto.

Be careful!

What a wild ride last week; down Monday & Tuesday, up Wedneday & Thursday, and then a tepid down on Friday.

How did I fair trading this insanity?  Did I grind my teeth, starred at the screen like a frozen deer in front of the headlight, or cursed at the market while watching my gain evaporated in my portfolio faster than you could finish debating the wisdom of cutting your losses quick (for Monday and Tuesday in hindsight)?

I would have done all of the above in my early days of my trading career.  Yes, I remember back in those days my mind was filled with trading wisdom from all the books I read.  Practically every author was shouting “Cut your losses! Cut your losses!”  What did I do then, I was having a difficult time overcoming my emotional response while witnessing the “turn of the event” that was decimating my portfolio.

And I guess lot of you would understand when I finally “cut my losses” when the pain became too great to bear.  And as usual, if you waited until your pain became too great to act, you “coincidentally” called the bottom!  Up and up away the market took off with fanfare while you were left by the train station in a remote desert with no water in sight.  After experiencing these desolate event several times, I would be foolhardy to continue trading without re-assessing my “weaknesses”.

That was when I realized reading books would not make you a good trader (forget about being a great trader for you must be a good trader first!)  Overcoming my emotional response during trading became my top priority in life; hence began my learning path in Tai Chi and meditation.

While meditation helped me to open my mind, it would take me more years before I could see the “solution” to overcoming my emotional interference in my trading plan.  Btw, being aware of your thought (from the benefit of meditation) by itself doesn’t mean you are free of emotional response activated by the thought.  Thus, began my new search to find a way to overcome the emotional connection to my thought.

BlackJack!!!

I was in Vegas for holiday and it reminded me about a book on card-counting by Ken Uston I read years ago. (At this point, you probably figured out that I LOVE reading!)  My light-bulb lighted up and I found my “solution”.   Card-counting is a game of skill which required LOT of discipline to make it work.  What more, card-counting is relying on gaining a statistical edge against the house in order to win.  What MORE, the betting system required to win in Blackjack is a form of money management.  Whoa!  Did it ring a bell???

It sure did for me.  I plunged right into the art of card-counting and practiced daily using computer simulation.  The beauty of card-counting is that there are PLENTY of rules to follow: like when to hit (or not to hit) based on dealer’s face card or when to increase your bet when the count is in your favor.  So, as you practice in computer simulation, you get plenty of feedback when you are NOT following the rules.  Inevitably, as you practiced more and more, you began to develop a new set of habit that is based on your experience that, in the long run, despite the multiple losses to the dealer, you could still beat the house.  Since the new habit is the ability to take action based on rules without thinking about it; you bypass the emotional connection to the thought.

BACK to last week.

Suffice to say that on Monday, while sitting on profit from my getting back into the market on Oct 26^th, I wasn’t worry about the correction which I considered as normal due to the strong rally for the last 3 weeks.  However, when Tuesday came with the news from Greece; it changed the dynamic of the market.  Without thinking, I “automatically” liquidated most of my position despite the fact the most of the positions turned to red from green.  It was automatic.  I didn’t stop to think or freeze like I did in the early days.  I took the losses because the trading rules dictated it.  Even though some of the position I liquidated eventually bounced back from the low by end of the day; I was fine with it.

Wednesday came and the market started to rally. This told me that the market dynamic had not changed at all; otherwise, it would be another down day due to vote of no confidence to the European bailout package.  Without hesitation, I started buying back some of the position I sold at a higher price. I was fine with paying higher price.  I took action because my trading rules dictated it.

I explained my action above because I wanted to demonstrate how developing new habit (from practicing card-counting) help me took action without hesitation. Emotion is what make us human but it isn’t really designed for trading in a highly volatile market.  Instead of doing away with emotion which is literally impossible unless you succeeded in being enlightened likes Buddha.  By then, you won’t care about money and ambition so becoming a great trader is a non-issue.

In summary, from my experience anyway, productive habit and discipline in following rules from card-counting can be transferred to trading which allowed me to take action without hesitation.

Thus, in action we resolve; in hesitation we fumble.

While I didn’t make money last week, I took action commensurate to the risk I was willing to take.  If the market continues to rally next week, I could pat myself on the back for not letting the market spook me out of my original position.  If the market tank next week, I would, no doubt, liquidate my position as a losses again automatically.  Remember, we MUST accept loss and take them before you can see the truth in being a winning trader. Btw, The Fly did exactly that when took his losses in RENN!  In the long run, like a dedicated card-counting professional, we “can” (but not guaranteed) have an edge to come out ahead.  The beauty of the stock market is that no matter how much money you made based on your trading skill, they can’t kick you out of the exchanges like they did to you in the casino.

Have a great trading week!

Unbelievable!  My first blog post; thanks to The Fly for making it SO easy!

Upon introduction to The Fly blog, I couldn’t believe the level of creativity in self-expression.  Reading stock market blog actually becomes FUN and entertaining!

I figured after reading all the creativity, it is time for me to contribute my 2 cents.

I’ve come a long way to become a net winner in this lifetime of trading.  My pursue of trading excellence took me from reading zillion of trading books to finally settling down to more meditation at the end.  Oh yeah, throw in Tai chi and Black Jack card-counting technique in the midst.  Card-countng!?  Yeah, I will explain soon enough.

It took me years before I realized that reading trading books would not make one a good trader; especially when one’s mind is not ready (or in another manner of speaking, when one’s mind is not opened).

Let me lay out my definition of an open mind from years of watching myself.  My mind can only be opened when I cease the obsession on the thoughts that flow by me non-stop.  How many of you pay attention to the clouds that passed by the sky above you every day?  Not too many I dare say.  Then why can’t we ignore our thoughts the way we ignore the clouds in the sky?

Until the day I ignore my thoughts and experience the silence within, I could not see the market clearly.  Why?  ‘cause my occupation on my thoughts pretty much fill-up all the mind-space in my head that there is very little room for the new ideas (or trading techniques) to germinate; not to mention I also have little room to listen to what the price action is trying to tell me.

It is only logical then that I began pursuing the art of Tai Chi and meditation.  Both were instrumental in helping me to become the trader I’m today.

What about Blackjack card-counting I mentioned earlier?  How did that fit in my training?  Well, it is not the card-counting skill that helped but the drilling into my mind that losing money is mandatory to win money.  Do you know that in order to win in Blackjack using card-counting technique, you literally have to play every single hand knowing that you will lose most hands until the cards begin to count in your favor?. Once you got that concept wired into your mind, you will not hesitate making a trade in the stock market due to fear of losing.  For losing is very much a part of trading.  Learn to love your small losses knowing that once the count (or the technical analysis) is in your favor, you can make it all back and more by playing smartly with money management.  I believe The Fly has demonstrated this concept every step of the way.

One more thing, pick your favorite stocks and stick with them.  Learn everything about these stocks and trade these core stocks to increase your wealth.  Did you notice that once the market turn bullish (or bearish), pretty much “most” stocks will follow the same direction?  So, what better medium to gain your wealth by trading only the ones you know best (due to years of observations)?

So there you have it, together with a quiet mind that give you the ability to listen to the price-action and your familiarity with the stocks you are trading, you develop trading intuition.

In summary, in silence we intuit!

So end my first blog post.  Due to my need to stay quiet during the trading week, I will limit my post to weekend only.

Happy Trading to All!