Monday, August 31, 2009

A little hindsight investing idea for Dom

If $700 was your threshold for pain on AIG puts, maybe next time you buy a put spread to the tune of $700. This way if things move against you short-term, at least you still own puts for the longer term. There is nothing worse than watching your ship come in later and you're no longer on board.

My twitter handle

I'm going to try to be more consistent in tweeting my trades as they or before they happen

Thursday, August 27, 2009

AIG recap below... incredible day!!!

I think this stock has more room to run and could be on it's way to $60 in the near term or even greater. See link for reasoning:

AIG: Basically made over $1,000 today with 200 shares

Update to come later today...

Wednesday, August 26, 2009

Another post to contemplate from our personal trading coach...


Reflections on Trading Processes
What is your trading process?

* How do you generate your best trade ideas?

* How do you manage risk most effectively?

* How do you manage positions most effectively to get the most out of trade ideas?

* How do you most effectively manage yourself and your emotions during trading?

* How do you prepare for market days most effectively?

* How do you best review markets and trading performance for optimal learning?

What I find is that the traders who have been successful over the long haul know the answers to these questions and also have very distinctive answers.

Like Toyota or UPS, they have developed their own, unique processes that are both efficient and effective. Success is a function of refining processes over time and becoming ever more consistent in following those processes.

If you *know* your processes, you can more readily develop confidence in them. Many times that is the difference between making the good trade and not; avoiding the bad trade and not.

Half of the challenge of trading is finding your best practices; the other half is implementing them with fidelity and consistency.

Here is another one and I know that we have all experienced this one:

Why Can't I Follow My Trading Plans?
An experienced trader writes to me:

I wondered if at some point you could re-address or provide links to
brief solutions for not staying committed to one's daily plan. Today
was an excellent example. After a breakeven morning with two decent
ideas which didn't pan out, I crunched some numbers which suggested
that the late afternoon, specifically the last hour, could be weak as
much as 1% down by the close and at worst maybe about .5% against me
(lower probability). I went short ES @ 829.50 around 2:45. The mkt
floundered around and by 3:53, I think, it's not going to happen today
and I don't feel like going home with a loss if the big boys try to
squeeze them at the end of day. So I cover with a 1/2 pt loss and
within 2 minutes the market begins to slide, cracking 10 pts by EOD.
Let's just assume the idea was randomly good or bad, I can still
estimate thousands (if not tens of thousands) of dollars in
opportunity cost over time, i.e. selling a winning trade @ 330 pm
instead of at the close per entry time plans for time and/or price.

All of us have experienced the frustration of bailing out of a trade prematurely, only to see it go our way. What makes it so difficult to stick with trade ideas and plans?

I'm going to use more than one post to address this question, because it lies at the heart of trading psychology. Indeed, it was my own experience as a trader--seeing that I was making all of the common mistakes that traders make, despite my background in psychology--that led me to write my first book in the area and examine the role of consciousness in decision-making.

The gist of what I described in the book was that, when psychological impediments to good trading occur, it is because the state of mind and body that we're in when we're executing or managing the trade is different from the state in which we formulated the trade idea.

From this perspective, all of the brief therapy techniques that I discuss in my subsequent books--cognitive, behavioral, dynamic, solution-focused methods--have the same purpose: to create consistency in our conscious awareness, so that we view markets through one, clear set of lenses throughout a trade.

What derails traders is that, at some point, we switch perceptual lenses and view the trade through the lens of profit/loss (P/L), not through the lens of probabilities, risks, and rewards.

That appears to be the case with the trader above. The key to his dilemma is that he had a breakeven morning, with two "decent" ideas that didn't pay him out. That set the stage for frustration. When he contemplates the third idea leaving him in the hole and says, "it's not going to happen today and I don't feel like going home with a loss", now he is P/L focused, not market focused. He is managing his feelings about the day's trade, not the trade he has on.

Performance anxiety occurs whenever our concerns over the outcome of a performance interfere with the process of performing. If our P/L focus exceeds our plan focus, we will tend to act impulsively to allay our P/L concerns, thereby violating trading rules and plans. Under conditions of frustration and anxiety, our perception becomes tunnel-visioned: we act to reduce our distress, rather than to maximize our opportunity.

Below are links that address this issue from different perspectives. In forthcoming posts, I will elaborate on solutions that aid in consistency of thought and action.

The Mother of all Final Hour Volatility Squeezes: AIG

Holy Moly! I took 2 quick scalps totaling only a paltry $10 when it broke above the key $35 resistance but unfortunately missed the lion's share of the move... too late to chase now. Incredible

Tuesday, August 25, 2009

Chicago Update

Hey guys, I haven't heard anything yet on a possible meeting with Susquehanna. My gut tells me this will be a phone conversation if anything and not a physical meeting in the next 4 days while I'm here. I did however stumble in to a contact yesterday. I was looking at apartment buildings and the leasing agent asked what I did, or why I was coming to Chicago from LA. I told him what I did and what I was looking to do, turns out he's a former pit trader, his sister is a retired options trader, and his brother-in-law is currently a trader downtown. He also said he knows of at least two traders who live in the building. He said these guys are like me and just trade their own accounts from their apartments. He was genuinely outgoing and helpful. I asked him if we could talk outside the business deal of the apartment lease and he said yes. So without even trying to network I might have stumbled across a potential 5 more people to talk to.

So I think all my questions about a possible move have been answered. I was able to find a few buildings I would like to live in. The only downside is they are all about the same price as what I'm paying now. I was looking to reduce my expenses. I could save money and go down to $900 but you would be living in gangland on the south side. Or you could pay $1200 and live in the city but in really dilapidated buildings with crappy amenities. But for $1400 I could have a state of the art building that looks and feels like a 4-star hotel. I walked the neighborhoods from north of Wrigley to the financial district. It really comes down to do you want to save a few hundred bucks for a trade off in amenities or distance from downtown. I would view a move as a 6-month experiment. If I wasn't able to network myself in to something by that time then I would have to reevaluate my game plan. So I guess I'm OK with paying high rent for that period of time until I can figure things out. I'm still debating in my head, I haven't made a decision. I'll think about it over the next few months and make a decision about moving late this year. I think at the moment I feel that unless something comes up, I'm probably heading to Chicago. We'll see. It was a good trip and I'm glad I did it.

Monday, August 24, 2009

Links on Proprietary trading firms

Here are some useful links to proprietary trading shops:

Directory of shops:

This site mentions a trade shope that has a very nice payout and commission structure:

Sunday, August 23, 2009

Monday Stocks I'll be monitoring

- The oil sector and it's relationship to the dollar: PBR, WFT, HAL, & the EWZ (that's the Brazilian ETF but it's economy is so tethered to oil).

- The cheaper TARP financials: C, BAC, NCT, AIG (think it has more volatile steam), FRE, FNM,

- Misc: HURN, AXL,

Just for you Jason...

Read this and thought you might be interested:

Social Networking and Trading Success
I start with a few basic premises:

* I have something to offer selected, others in the trading world;

* Selected others have something to offer me;

* I don't know who those others are, but I can find out.

So every week, I make it a point to "cold call" at least one trader or industry professional who seems to be a kindred spirit.

* Half of all my contacts are not returned;

* Half of the contacts returned result in polite thank yous and nothing more;

* Half of the remaining contacts result in pleasant social contact and nothing more;

* Half of the pleasant social contacts peter out after a short while;

* The remaining (roughly one in sixteen) contacts prove to be highly mutually fulfilling.

So every year, I add on average three professional soulmates to my network, as they add me to theirs. We learn from each other and further each other's work; we keep each other going during tough times and are there cheering on the sidelines during times of victory.

With 15 out of 16 contacts ultimately "failing", you could say that I'm not very good at networking.

With a network that grows year over year, you could say that I'm a raving success.

Both are true.

It's the "failed" outreaches that lead to the successes.

How similar to trading: You have to lose to win. And you have to embrace the losses to find the victories.

Saturday, August 22, 2009

A quote from Dr. Steenbarger...

"It is better to struggle in the service of one's dreams than to find instant success at meaningless work. The greatest joy in life, George Bernard Shaw once wrote, is being used for a purpose you recognize to be mighty. The greatest fields--those that are a calling and not a mere job--give one room to expand and develop oneself. There is only one valid reason for trading the markets, just as there is only one valid reason for being a psychologist, a dancer, or an architect: because it is your calling, the arena that best draws upon one's talents and passion for self-development." - The Psychology of Trading, p. 317.

So True!

Playing the Breakout: NCT

So I was watching stocktwitstv today and saw a segment with Brian Shannon who has his own site called I found his analysis and commentary about misleading tape (bid & ask) practices interesting and am personally intrigued about how I can do so with my orders... He discussed how the laggard cheap financial stocks like FRE, FNM, C, etc... started moving this week which is exactly what I was expecting... too bad it hasn't happened for CIT yet.

I added NCT to my day trading Watchlist. For me I can see 2 bullish and 1 bearish ways to play this stock intraday. It's helps to remember that this stock was over $20 about 2 years ago...

1) If the stock can hold above the previous day's high at $1.50 then you could initiate a small position. The next level of minor resistance is $1.60. If it can clear $1.60 it should head straight to$2 with a few bull flags to rest through. What I would love to see is a push through $1.50, a sucessful retest of it, hold and clear $1.60. That would indicate the maximum power of the bears and the line in the sand that the bulls have drawn. Above the $1.60 level we should see demand overwhelm or at least outweigh supply. Volume is also key too.

2) If the stock begins to fall you could wait to see if the stock holds resistance at about $1.20. What I would love to see before hitting the buy button is the stock come down close or to $1.20 and bounce off that key support. Depending on the velocity of the upswell I would look to get in as close to support as possible.

3) You could also short the stock if $1.20 support fails and look to unload before the next key area of support around $1.00 which is also the 200SMA.

So I've set an alert at $1.52 and $1.25.

Jason's Chicago Trip (Prop shop interviews)

I kind of wanted to document this as, I think it will be kind of cool to look back on our humble beginnings.

From Jason:

Hey guys, I had my meeting with the guy from Peak6 yesterday, and a second meeting with a guy from a futures firm. The Peak6 guy was really cool, answered a lot of questions. He explained to me what exactly they do and there isn't anything there that is a natural fit for what my background in trading is. They only have a few traders and they are all financial engineers, not exactly traders. The firm itself is a market maker in certain ticker symbols, and then does risk arbitrage on anything they think they can exploit. So let's say the options pricing model would price an certain option at $2.50, if because of supply demand fluctuations or big shifts of volatility this option is priced differently, let's say $2.40 or $2.60, they will exploit this discrepancy through a combination of stock, options, futures, and specially structured off the exchange derivatives. They borrow money from Goldman Sachs in order to leverage up and multiply those pennies thousands of times. So obviously this is an advanced trading scheme and something I'm not currently qualified for. So I asked the natural questions like how do people become qualified, and what type of background did your current employees come from, etc. So beyond the obvious route of coming from the bigger name MBA schools or being a quant who was recruited by the firm, he didn't really have any answers for me. He knows somebody at Susquehanna and asked me to call him on Monday and he'll see if he can set up a meeting with them for next week since I'll be here. He said he thinks that they might have something a long the lines of what I'm experienced at doing. So we'll see. At a minimum he's a contact that works in the CBOE building which is where all the action takes place here. He said for me to check in with him every few months and for me to just keep networking. I inquired about a part-time unpaid internship to get my foot in the door and get exposed to everything that's going on and it sounded like that was a possibility that he could either hel p me with directly at his firm, or through some of the other firms in the building.

The second meeting was with a guy I had had some conversations with back in November. At that time I was looking in to learning how to play futures because from my recollection of taking the Series 3 exam it looked like it was basically options on steroids. But right as I got in contact with him is when things went south in a hurry when I was short some naked puts. So I didn't want to send money in to open a futures account because I though I needed it all to potentially buy stock if those puts got exercised. Long story short, I now have money freed up and I still have the interest to learn futures so I gave him a call. He works for MF Global which is a large futures/options broker. I will be opening up an account with him next week, and he too was very helpful in answering all the questions I had. On a personal level we just it off like the three of us have and with or without opening an account he seemed genuinely interested in helping me out should I chose to move to Chicago. He also works in the CBOE building and knows a lot of people at a lot of different firms. He said he would have no problem passing my resume around and introducing me to people. I ran the internship idea past him and he made it sound as if that shouldn't be a problem.

So in my opinion both meetings went about as well as I could have expected. This networking thing has been difficult for me. I'm not the most outgoing person, but it's starting to pay off. At a minimum now I know two guys who work in the building that I eventually want to be in. As long as they don't suddenly just stop returning my calls or emails I think at a minimum I'll be able to network further through them. I would say that if I was on the fence about coming to Chicago this should have pushed me over and left no doubt. My initial intent would have been to come for 6 months and network and see what I could come up with. That's still basically my plan should I chose to go. But anything can happen between now and January. I am interested in pursuing the SMB thing, or similar situation with another firm. I still have many calls and research to do on others so who knows what I'll come up with. So I would say that as of now I'm leaning towards heading out here sometime in the spring, but again, anything can happen between now and then and I'm completely open to anything. Mark and I have talked about possibly going to NYC together and I'm definitely interested in that. I'm spending the next few days literally walking the streets and getting familiar with the neighborhoods and looking at apartments. There is so much available here it's pretty sick. Rather than looking for a place to live in general, it's more like just pick an area you want to be in and there is plenty available within each neighborhood. I haven't seen specific prices yet other than what's posted online. So I'll get more of a feel for that the next few days. That's about it, maybe I'll have something more if indeed I get to meet with somebody from Susquehanna next week.

Mark Replied:

Sounds great Jason. I would say you were really successful in getting solid leads and networking. I think trading equities is not like most day to day jobs where their looking for political corporate choices like who fits best in our workplace, who's attractive, who's not threatening, who's going to do what I say and who's not cause me too much headache. Trading firm opportunities seem to be there as long as you can commit and are willing to do whatever it takes to make money. I think partners are strongly encouraged to see someone who's aggressively looking to get in as long as they can prove that they have the endurance and passion to make it... because of the bottom line nature of the business.

Keep up the networking! Personally I've found networking isn't hard at all when you're talking shop and possibly employment with others who share your passion.

I can see you in Chicago more than Orange County because the people there are more about simple things like community.There is more than ample housing in Chicago and now you know why I am so bullish about their real estate market. I check their listings daily and monitor existing properties and they are still haven't bottomed out yet... and the area is already relatively affordable when compared with over-priced sunbelt markets like LA.

I think I may have to shorten my 2-year plan. Yesterday I learned from my Supervisor that things are taking a serious turn for the worse with my employer and it looks like the cuts are heading my way.I am going to be looking to transition more aggressively and prepare for this eventuality. So... let's keep talking about doing the training program like SMB's in NYC. At the very least you get invaluable training/experience in NYC which is can be written-off...

Who knows what the future holds especially during hard economic times...

Dominic's Response:

Sounds like you had some successful meetings so far. I really think
that the three of us hooking up and sharing our passion has motivated
all of us to make that leap a lot more aggressively then we might have
if we would had never really joined forces. I just wanted to thank the
both of you for being such a great source of motivation and for all
your contribution thus far. I look forward to our progress and the
road ahead.

Routine for going live...

I just thought I would share with you the routine that I plan to follow for going live. Some of it is what I have been doing on the demo and other stuff is added for going live.

Morning Routine:

5:00-5:30 am – search for stocks in play and read synopsis of market events and what may move the market. Pick a few stocks that I think will be in play and turn to the charts to find some levels, check where they are at pre-market and if any levels with significant volume. (Once live I assume I will be sharing these in the play sheet, not sure though). I usually write in my trading journal at this time as well.

5:30-6:00 am – Tune in to the SMB morning call. To continue to gather good trade ideas, and or confirmation on some of the ideas that I already have.

6:00-6:15 am – Visualization exercises

6:15 -6:30 am – Set alerts for other ideas from morning meeting. Continue to watch primary and secondary stock trade pre-market. Continue to look for other trading candidates. Share trading ideas in the chat room.

6:30-8:00 a.m – Complete focus on trading the open.

Routine for Close:

11:45 am -Noon – Sit down at computer at friends place. Skim briefing. Look at stock I traded during the open and see if they are near important levels that I had identified in the morning. Look to the charts of stocks I traded in the morning to see if anything interesting had developed since I left. Also check intraday alerts. Choose two stocks to trade on the close, they may or may not be the same from the morning. Just depends which ones look like they are presenting the most opportunity, and/or how I traded them in the morning. Ideally I would like to trade the stocks from the morning as I have already put in the hard work, and it seems like a lot of the time my ideas take time to play out in the afternoon when I am no longer trading.

Noon- Market Close – Complete focus on trading the close.

Night Routine:

7:30-8:30 pm – Review my trading tape. And comment on my trades in the mentor sheet.
8:30-9:00 pm – Do visualization Exercises
9:00-9:15 – scan and for any breaking news or news that may put a stock in play tomorrow. (Actually just starting this one on Monday).
9:15-10:00 pm – Pour through charts for possible plays tomorrow (This is one I am starting next week as well)

Weekend schedule:

More screen time. Review at least one of the archived OGT or Video review sessions on Saturday and again on Sunday.

Mark - I was also wondering if you might be interested in giving us some lessons in technical analysis. As it seems that you are the most well versed in this area. I know some of the basics, but I could use more help in this area. Let us know.


Friday, August 21, 2009

A few pieces of information

I just wanted to give a couple useful items.

1) I wanted to remind you guys that there is a prop desk in La Jolla near San Diego. I actually may join it after I get some success with SMB as they have the highest payout I have seen in the industry. But they lack a training program and mentorship. The name of the prop shop is Ocean View Capital and its website is the following: WWW.OCEANVIEWTRADE.COM. Mike Kestler is one of the partners and senior traders. They have the same commissions as SMB but have 90% payout structure and you have to have $10k on deposit with them and they will provide you with the intraday buying power that you need.

2)During my 2 days off this week, while I was waiting in the hospital waiting rooms I reveiwed a couple sections of "The Daily trading coach". Came accross This is another prop shop mostly dedicated to option located in Chicago. There website is at I reccomend you guys check out the blog.

Jason, not sure if you have checked out the site yet or not but it sounds promissing for someone in your shoes. I like the blog to.

Thats all.


Stocks to watch 8/21/2009

This morning I will be trading the following stocks: SJM (Long in front of $53, short below 53 for gap fill 51.90), ARO (Long 36-36.20, targeting a point up move.), And lastly looking at GPS (Dream entry is 18.90 to long side.)

Market is gaping up and with that I have a long bias for the day. I will however be mentally agile.

Good luck trading today.

Thursday, August 20, 2009

Watch the dollar's demise or at least it's intermediate fall

I always have an eye on how the dollar's doing intra-day and how it's inverse relationship with equities especially the oil sector...

Today' Performance <082009>

Continuing to take profits. A lot of AIG scalping today. Improved a little in holding positions a little longer.

Underlying Action Quantity Price Sold Commission Net Proceeds
C SWING 500 4.04 4.19 5 $70.00
HURN DAY 100 20.55 20.36 2 -$21.00
HURN DAY 100 20.6 20.28 2 -$34.00
AIG DAY 100 29 29.29 2 $27.00
AIG DAY 100 29.5 29.6 2 $8.00
AIG DAY 100 30.1 30.2 2 $8.00
C DAY 500 4.28 4.48 2 $98.00
AIG DAY 100 31 31.1 2 $8.00
FRE DAY 200 1.47 1.58 2 $20.00
AIG DAY 100 33.6 33.7 2 $8.00
FRE DAY 200 1.5 1.6 2 $18.00
ES DAY 100 9.3 9.39 2 $7.00
AIG DAY 100 31.65 31.3 2 -$37.00
AIG DAY 100 31.3 31.57 2 $25.00
AIG DAY 100 31.7 31.8 2 $8.00
AIG DAY 100 32.4 32.5 2 $8.00

Total Net $221.00

Wednesday, August 19, 2009

Buy everything but the dollar says Warren Buffet: NY Times Op/Ed

Why is the market rallying? Well one reason is the dollar is naturally falling as the government expands the deficit uncontrollably and prints money to buy it's own debt... The irony of Warren Buffet is that he is now an important iconic political figure in America and while advocating for the Fed to do whatever it takes to alleviate the downside of a bubble economy he also warns of the natural nasty effects of taking such action:

If the dollar falls then expect the market to continue it's unusual rally as our exports become cheaper and people flee from cash into other equities and assets. Oil will continue to rally as the dollar falls against other currencies. But if you hold cash or US bonds may Peter Schiff help you...

Reading the tape with G-man from SMB

today's performance <081909>


Underlying Day or Swing Quantity Price Sold Commission Net Profit
AXL Day 100 6 6.2 2 $18.00
C Day 500 4.09 4.15 5 $25.00
AXL Day 100 6.9 7 2 $8.00
HPQ Day 100 43.45 43.22 2 -$25.00
CIEN Day 100 13.17 13.42 2 $23.00
D Swing (2 day) 100 33.2 33.45 2 $23.00
HURN Day 100 19.75 19.81 2 $4.00
AIG Day 100 26.75 26.6 2 -$17.00
Total Net $59.00

Tuesday, August 18, 2009

Today's Performance <081809>

Day Trades (100 shares)
HURN #1: $18.2, $18.25 = $3
HURN #2: $18.80, $18.98 = $16
AXL #1: $5.02, $5.1 = $8
AXL #2: $5.22. $5.30 = $6
HURN #4: $18.50, $18.80 = $28
AXL #4: $5.18, $5.30 = $10

HURN #5: $19.10, $18.92 = $14
HURN #6: $19.15. $19.15 = $12

Swing Trades
C #1 (1000 shares): $4 (yesterday), $4.07 = $65

Total Proceeds for today = $135

Working on: Need to learn to let my winners ride more and not get so antsie.

Absolutely crazy day trade

My friend Harry from Texas, the 4th guy that was invited to join our club but hasn't yet, just called me with a play he thought I might be interested in. He typically sits in cash and waits for the last week of expiration to try and jump in and snipe some remaining time value. The ticker was MRX, he paid $16.50 and sold the Aug $15 for $2.10. So you looking at making .60 on $14.40 or 4.2% for 3 days and 1 hour of time premium. Common sense and experience tells me that obviously something is up. They either have an announcement coming where someone has place their bearish bets, or someone has inside information. A quick search showed Najarian blogged this same thing, but had no information, just informing that somebody is bearish in a big way. So I sold 10 $15 puts for .60 when the stock was at $16.50. This is the equivalant of buying the stock and selling the ITM call. So as I'm sitting there still talking on the phone the stock runs up to $18 in literally 2 minutes. I put a bid to cover in at .15 and they got filled. I have zero idea what was up with the stock, it was not a technical or fundamental play, just a small gamble that paid off and made $450. It helps offset the $5000 loss I took on the SPY puts. It's time like these that I question why I would be long when you can make money in minutes. I know not everyday will be like this and it's not my norm, but at this juncture of my life as I move towards a large cash percentage I like the idea of short term trades better than longer-term.

Oh, the kicker, I was literally walking back to my house when I got this call on my cell. I forgot my notes to study for my final. Had I not forgot my notes and was away from home, I would never go home and put this trade on. It was just luck, either that or god loves me.

Monday, August 17, 2009


About four weeks ago when I bought those in-the-money puts on the (SPY) at $98 when the ticker was at $88, I said that as we approached S&P 1000 and I lose 100% of this hedge that I would need to liquidate in order to make the hedge make any sense. So I tried that today and did sell the JPM but the MET I got screwed on as posted earlier. So I'm OK with holding that longer term now. The (SPY) puts are actually out-of-the-money but still fetching $1 for 4 days of time value, so I'll look to sell those for whatever they are worth on Tuesday as there is nothing left to hedge and that value will go to zero in 4 days. It's going to be a $5000 loss, but the two positions (JPM/MET) went up in value much more than $5000 during that 100 point move in the S&P. However, since I'm not actually liquidating the MET position, I have to look at this as a partial failure and waste of money on the hedge since I'll be carrying future risk still. Live and learn. Just wanted to share.


I sold 10 naked $33 August puts for .41 when the stock was at $33.89. Just trying to steal $410 for 5 days. I am not against owning this as I want some sort of gold exposure as part of my long-term portfolio since I plan on staying in mostly cash until further notice. If these are put to me I will turn around and sell $33 covered calls for September. I played this particular ticker in the past and it's historically had a higher than average beta so the month-to-month options premiums are always attractive. It might be something I sell conservative covered calls on long-term.

Gap down in the market --> Less Opportunity to short intra-day

Just wanted to share something Bob Pisani just said on CNBC that brings up a good point. Basically he stated that because the market gapped down at the open that this didn't allow traders to initiate short positions and that's why the possibility of a short-cover rally at some point or at the close is relatively small. This is why we may just drip painfully lower throughout the course of the day which is what we're seeing right now.

Right now I'm up a little trading WLP twice and buying back my MTW calls for some pocket change. Goal is to remain in the green today.

Did I call that or what?

Even with the big drop I was able to get out of the 20 JPM contracts for the same profit as I had calculated over the weekend even though the stock is down $1.30 from those levels. The BxA spreads on the Jan 2011 options stayed steady so I got lucky. MET is another story. The bid on the Jan 2011 $12.50 call I have is less than its intrinsic value. That means I would have to either take a loss on that, try and split the BxA and get paid what I should, or actually exercise those options and then turn around and immediately sell to capture the actual intrinsic value. The BxA spread on the naked $30 call is a $1.00 so I'm not paying the ask. I'm kind of stuck with this one unless I want to take a big haircut. If I paid the bid and ask I would be left with $11.70 for something that is worth $17.50 as long as it's in the money. I can realize this same profit if the stock is at $24.20 on Jan 2011 expiration, it's $34.70 right now. So another lesson learned with the long-term call spreads. So as of now I'm staying long the 15 remaining contracts I have until I can exit at better terms.

Sunday, August 16, 2009

SMM Vegas Workshop in Oct.

I booked the workshop. Wasn't cheap cost me $840 plus gas to get there so I'll just say $900 tax write-off. I won't be forking out the extra $$$ for a room for a night. I'll be leaving about 3A Saturday morning and heading straight back Saturday evening.

I'll share what I learned if it proves fruitful.


Saturday, August 15, 2009

SMB Blog: The question before us

Can You Make it as a Retail Trader?

11:17 am Bella's Blogs, General Comments

I received this email from a reader of our blog. I thought we could discuss……

Hi, this is Ivan in NYC(Bulgarian immigrant) – regular reader of the blog. I’m a retail trader – relatively a newbie.

Although, I can not formulate particular trading strategy just by reading the blog I enjoy reading it and find it useful.
I would like to ask you about your honest opinion and advice to the retail traders like me – what are the main disadvantages we have compared to the equity firm traders?
What honestly do you think are retail trader’s chances to be consistently profitable in swing and day trading?

Thank you for sharing and Good Luck.

Bella Responds:

Trading is probably the most difficult thing you will attempt in your life. It is like trying to join an exclusive country club- they do not let everyone in, and they don’t let everyone stay. But more are capable of becoming a successful trader than you may think.

There is this outdated bias that you must work at a big bank, live in NYC, and have millions behind you to succeed. This is simply not true. Technology has opened the markets to the masses. Trading platforms, like LightSpeed, with direct access to the markets are available. Charting software is simple to find. Blogs with exceptional education are prevalent, many like this blog for free. Now we have StockTwits TV, a tremendous educational trading resource. Training programs are offered for those looking for help to become a professional trader. With 30k you can open a retail account (you will also need capital to survive the learning curve). Now anyone with a passion for trading, the desire to pay the price necessary to succeed, and some capital can compete.

But these are some pretty big ifs. Are you truly willing to pay the price? Will you work on your game everyday? Or will you bail as soon as things get a little tougher than you expected? Will you ensure you receive the proper training? Or will you just read a few charting books and conclude that this all the training you need and then foolishly attack the markets? Is your passion truly for trading? Or do you think trading would just be something cool to try? Do you have some capital to trade your own account and survive the learning curve? Or are you under-capitalized and just hoping that you will start making money on Day 1?

Technology has opened the markets to us all. Can you become a successful trader? I don’t know. But I do know that it is entirely up to you.

Best of luck with your trading! Don’t forget to follow us on Twitter!

Investing with Options

Was watching some stocktwitstv today and caught Steven Place's Brunch episodes. Was following along with his lightning round technical analysis of viewer's stocks and was impressed. I guess he has his own site:

I'll be monitoring his picks and plays...

Friday, August 14, 2009

JPM & MET Call Spreads

So both of these stocks are about $7 above the naked call prices. Both spreads are currently worth about 73% of the maximum value. This is 5 months in to what was originally a 22-month spread. I looked at what the spread would be worth if the stocks goes up another $5, I would only be picking up another .85. However, if the stocks goes down $5 I lose more than .85. So clearly the short-term risk/reward favors liquidating the spreads. Then I looked at the Jan 2010 expiration with the same strike prices just to get an idea of if these were Jan 10 instead of Jan 11 spreads, how would it look. At today's prices the liquidation value of the spread would be 87% of the total possible because you've still got 5 months of time premium even though you're $7 in-the-money. To me it's not worth waiting another 12 months to pick up another 14% of that remaining 23% possible maximum gain. So I'm leaning heavily towards liquidating on Monday unless we open down big.

I think if you told me 6 months ago that I could pick up 73% of the possible gain in 5 months I would have been excited. If you told me that at expiration the spread was very profitable, let's say 73% of the possible, I would have been happy. So here is why I'm posting about this, I never had a plan for this trade. I made the decision in about 15 minutes simply because over the weekend back in March and looking at the closing prices, it just seemed like the risk/reward trade off was appealing. I went with the farthest expirations available at the time in case I was wrong. So I learned a lot about spreads, their timing, the risk/reward trade off at different points in the trade, and I can exit and be above 70% profitable. So I know you guys already know this, but having a plan is pretty damn important. Historically I've just kind of flown by the seat of my pants, and that's why I can't really point to anything I've done over the last few years and say "this is what I do." I don't really know what I do other than just keep trying new things. So I think I would like to close out and get real close to 100% cash as I finish up my last 16 weeks of school and decide what I'm going to do with the next phase of my life. Thanks for listening!!

Got cut up today...

Well first real down day:

1) PCX: Bought 100 shares at $10.05. Stopped out at $9.95 = $12 loss
2) LVS: Bought 100 shares at $13.57. Stopped out at $13.40 = $17 loss
3) LVS: Bought 100 shares at $13.30. Stopped out at $13.21 = $11loss
4) LVS: Bought 100 shares at $13.30. Stopped out at $13.15 = $17 loss
5) BAC: Bought 100 shares at $17.40. Stopped out at $17.35 = $7 loss

That's almost a $54 loss for today. I also suffered another LVS $70 loss for the swing trade I carried over the night.

So I'm down about $125 for the day.

Thursday, August 13, 2009

My early morning losses & other trades

I was down $56 in the first hour of trading because of the market's indecisive direction and I was getting shaken out. Looking back I am quite pleased that I didn't let this affect me at all and I continued to make better trades into the day and recouped my losses and was up over $50 in intra-day trading.

EK: Bought 100 shares a@ 4.32, stopped out at 4.26 = $8 loss
SKF:Bought 100 shares @ $29.09, stopped out at $28.80 = $31 loss
BAC: Bought 100 shares @ $16.65, stopped out at $16.48 = $17 loss

I made about $20 later in the day with EK, buying 300 shares of UNG at $12.52 late yesterday and selling this morning at $12.79, and shorting COIN from yesterday and closing out my position pre-market for about $20.


Today was a really good day for me. Yesterday I bought 500 shares of CIT at $1.24. These were added to my already 2,000 share position at $1.42 average. CIT jumped back up to the mid $1.40's. That was about a 17% gain in 1 day so I decided to ring the register at $1.45 and take my little profit of $103 and add it on top of my C money.


Finally dumped my remaining 600 shares of C that I bought around $3 average at $4.10. The market is really getting long in the tooth here and I wanted to finally dismount this one and lock in my profit. I still have 1000 shares in Dad's IRA account that are the buy and hold until I can say that I bought Citigroup at $4 a share...


Holy Moly. Did anyone catch the action with this one? Trading was halted around 3PM EST on this one. I saw this on my watch screen and heard Scott from T3 talking about it and he kept saying that this may have been caused because of the "Macau IPO announcement" but as soon as trading resumed around 3:30 I immediately saw this one popping and got in at $13.20, rode it for about 2 seconds to $13.50, sold out, saw it hold above $13.70 bought again, sold out at $13.78, bought in again at $13.80 thinking that this was going to be the push through the 200 $14 resistance and once that was broken this thing was going to skyrocket. Well I saw the stock hit the $14 and fall back down and never was able to surmount another run but hearing Redler and Sperling say that this one's got more room to run in the next few days gave the confidence to just hold it overnight. Also the market's ability to rally into the end of day I felt would help bolster the bulls into the end of the week.

SMB...The next step

So today I spoke with my mentor Roy about moving to the next step. He actually wants me to go live starting september 1st. It is a few weeks earlier that I had expected. So I should get the paperwork that I need to fill out next week, because they have a contract and a matrix for the payout structure and what not. The first 6 months for a new trader you automatically get 80% of your profits. But past this initial time period it will be based on your Ticket Average, So the higher your ticked average the higher the payout. The lowest payout is 50% and the highest is 80%.

Roy was telling my typically the turning point for a new trader is about 3 months. Meaning in 3 months this is when you really start to become consistently profitable and at the 6 month mark they are ready to start pushing you to your potential to really see how much money you can make.

Anyways I will keep you guys posted.

Wednesday, August 12, 2009

Test feel free to delete

Day Trading, Cheap commissions, and overtrading

So today I traded about 10,000 shares for the day and only finished the day up $30. First I have to ask, why the fuck did I only finish up $30 on 10,000 shares. Well I can answer that very easily. The first reason is because the commissions are so cheap. It is 3/10 of a penny per share or .30 each way. That means I only need to make .60 or .006 per share to break even. I have found that this cheapness can lead to over trading. I think regardless of how expensive or inexpensive your trades are you need to treat them like a commodity. You still need to be selective, Otherwise you are just going to churn your account. To give you an idea on a normal day I only trade about 3000 shares to hit over $100 in profit. Not that I do not plan to trade this many share and much more as I gain more experience but I need to instill good habits now so that when I go live I don't just throw away money.

To put everything in perspective the experienced active trader is trading anywhere from 50-100k shares a day, but they are also making a few thousand bucks a day. It really all comes down to ticket average to see how efficient you are trading. To find the ticket average you take your total P&L and divide it by 1000. So if you are up $150 and you traded 3000 your ticket average or profit per 1000 shares traded is $50. Now in my case today if you traded 10k shares and you were up 30 then your ticket average was $3.

I think that SMB targets $15 or greater. On my good days I have anywhere from 9-50 TA.

Just thought I would share.


My first alarm did not go off this morning so I was about 15 minutes behind and was a little frazzled expecting a pullback and getting my planned shorts up from last night's prep.

Watched the market open up, hold and scanned my sector watchlist and saw the oil and oil service sectors all positive. Decided to make a trade, assessed the risk/reward ratio for USO the stock could run up to $37.70 before hitting serious resistance from it's open of $37 and I was willing to gamble .05¢. Took on the position once uptrend of $37.10 was beginning to work. Got in at $37.14 with a tight stop at $37.09. Realized stop was too tight and was stopped out. Got back in at $37.20 and sold out at $37.49 once I recognized there was heavy resistance at $37.50.

Stock has since fallen back down right after I got out and looks like it's making another run... still on radar but will probably wait until the closing bell to take on anymore trades.

Tuesday, August 11, 2009

Breakdown not breakout: CSIQ

I thought this stock had momentum midday (9A PST) to begin heading back up to at least $19 and was heading straight through resistance at $18.40. I waited for a retest of new support and saw a bull flag forming. Got in around $18.44 with a stop around $18.38. The stock broke out and then spiked up into the $18.60 ether in what is now a clear exhaustion move. My stop was not triggered and I had to wait until the stock came back up and hit the eject button around $18.33. At the time I was actively managing 3 other positions (D, RAX, & COIN)

So... what I learned today I need to work on managing multiple positions. Looking back over this trade there was absolutely no probably reason that this stock was going to erase today's pullback and hit my $19 target. The fact that the stock was able keep it's day low at the same level as the previous day's low and close above the previous day's low is a bullish sign. A more probable trade would have been to buy around $18.10, the max power of the bears.

Time Capsule Treasure Chest Stock: CIT

Added another 500 shares at $1.24 to my already 2000 share base. My cost average is $1.4726. I have no stop on this position. This is part of my put in the chest and lock it away positions. The uptrend still looks intact. There was an article in Barron's about the Fed focusing on commercial real estate over the weekend. Any governmental assistance to commercial real estate should greatly benefit this laggard financial and help propel out of it's trough bottom and get it kick started like AIG and Fannie and Freddie.

Once there's stabilization with CIT I will look to sell monthly covered calls.


One good opening trade this morning thanks to Mr. Marc Sperling. Heard him talking about this stock pre-market to his traders and saw thebull flag setup. Actually traded this one before a few months ago and decided to participate when the stock ripped above $1.50 resistance. Next level of resistance was $1.70. Decided to wager .07¢ for .20¢. Bought 300 shares at $1.52 stock with a stop at $1.45 dropped to $1.45 did not get stopped out watched stock pop to about $1.65 decided to just cash out at $1.62. I'm walking away with my $27.

Another important tool I used was the "tape" or Market Depth to see how the order flow was going. Thanks to Dom's stocktwits link I was able to apply what I learned last night.

The lesson I learned from yesterday is "hubris" not going back today unless there's some new development I can confirm. Going to follow gambling rules the longer you play the more the probability favors the house.

Monday, August 10, 2009

Day trading and trade amnesia...

I think as an intraday trader you have to have amnesia. What do I mean. Well for anyone new starting out in day trading you can fell in increase in urgency and anxiety. And it can be quite discouraging having loosing trade after loosing trade. But one thing you have to be cognicent about is that your past trades have no barring what so ever on you next trade. You can only focus on one trade at a time. I think that it is all to easy to create a downward spiral when trading intraday, or any timefram for that matter.

Today was a perfect example. I was trading DISH and I had identified 20 as an important level. So on the break of 20 my plan was to get short for about a point move to the downside. It brok 20 support so I initiated my short at 19.99, my orignal exit was a break back above 20 covering at .01-.03 depending how fast I was. Well the stock did not go down right away so I covered for even money. That was my first mistake, I did not give this stock any room to breath. It never traded above 20 going into its 1.01 downmove to 19.02. I was pissed that I had covered my dream entry too soon. So I stepped back and re-evaluated the trade to find another good entry letting my last trade hover like a lightning cloud. I decide that the break of 20 was confirmation of my bias and that I would be even more confident if the days low at 19.85 was taken out that this baby was going to 19. The risk/reward was still good risking about .06 to make .85. So I got short at .84 setting a stop at .91. But again I was inpatient and covered at .77 dwelling on the fact that I left .15 on the table and the best entry for this trade. So moral of the story is don't let past trades effect your judgment on the trade you are in. I am not saying don't use information from past trades to guide you but I let this negative feeling affect my trading.

Not sure If I was clear or not but I think you get the idea of what I am trying to say. Don't let past trades affect future ones!

Today was a frustrating day as I was always a "Day late and a dollar short", so to speak on my entries and exits.

Reading the tape...

Hey guys, we were talking about reading the tape and ironically enough partner Mike and SMB has put up a special on tape reading on Follow the link to go to the video.



Worked well for me today... Also tried to buy PALM this morning with too tight a stop and was stopped out. May buy if holds support

Sunday, August 9, 2009


Look who is changing his tune. I remember talking with Mark about this a few months ago. There were very prominent people on both sides of the equation taking drastically different views of what to do and where we are headed. Now that disaster looks to be avoided they are quickly changing their view to preserve their reputation. I still don't look for Nouriel Roubini to change sides any time soon.

Saturday, August 8, 2009

Meeting Recap

Hey Guys. It was really great getting together tonight. All in all I thought it was really insightful for everyone to share what's going on and where we see ourselves heading in the next 6-12 months.

Just to recap:

- I signed up for my free trial subscription to and am checking out the sight now.

- Reading the tape at SMB. I believe this is the "Market Depth" feature on IB and I've been watching it for the past couple weeks trying to understand what I'm seeing and how to intrepret that information. Maybe we can cover this on skype some time soon?

- I didn't mention it but I am consider attending a 1-day workshop (just depends on the cost) for in Vegas on Oct. 3rd. This site has definitely taught me most of my technical analysis and I can attest to it's educational as well as financially beneficial value. If anyone else is interested please let me know. Dan Fritzpatrick who runs the site will be hosting this 8-4:30 workshop covering the following curriculum:

  • Curriculum: This is an intense workshop for those who are serious about getting serious with your trading. This is not a basic workshop for newbies! (I'll teach one of those early 2010)
    • Students will learn how to prepare for and trade the "opening rotation" using techniques that can enable you to make more money before you go to work than you are likely to make at your regular job.
    • Am I teaching you secret formulas and methods that no one knows about? No! Those don't work because they don't exist! That's the fallacy of trading. There is nothing new under the sun (and no one else will tell you this!)
    • I will be revealing trading methods that few traders know about, and even fewer use. You'll learn the tactics and techniques of professional desk traders who regularly steal money from the amateurs before going out to breakfast on your dime! I will put you into the game with the tools you need to switch teams! To take you from "amateur" to "pro."
- Dominic: Please let me know about your Temecula condo. Always curious about real estate plays. Also if you're going to be sitting in on the CSUF options course. Maybe Tuesday we can test the Skype. Thanks!

- Wall Street Warriors on Hulu:

Friday, August 7, 2009


Couldn't help taking another small momentum scalp this morning once LVS had a confirmation break-out above $12. Bought 100 shares at $12.10 with a stop at $11.98 and a price target of $12.98... The stock started showing fatigue around $12.70 and peaked around $12.80. Once there was a confirmed breakdown I decided to pull the trigger at $12.52.

Watched and waited to see if there was another entry but the stock failed to show another uptrend leg into the close.

I am still bullish on this stock as it approaches the 200 SMA... will wait and see what happens on Monday.


Just sold 600 shares of C that I believe I bought around $3 average... not bad for a 33% pop. I still have 600 shares left to go... will probably unload 300 more around $4.50 the next level of resistance and the rest I'll hold for the long run. The buyers need to chew through all the $4 orders.

Stock looks really strong still trading above the upper bollinger band holding today's breakout... will be monitoring to see if the trend continues and/or the stock begins trading sideways in a volatility squeeze. With all these positive government economic indicators the worst for even Citigroup looks to be in the rear view mirror at least that's what investors may be seeing.

Probably won't be trading anymore today unless I see a really good setup during the day.

Daily chart:

1 minute chart:

Thursday, August 6, 2009

Shit adds up quick

I just got whacked $2400 in extra tuition increases, for one semester!! Thank god I'm getting out this semester. $600 for an interview suit. $1000 prepaid for airline and hotel to do a recon trip to Chicago. I can justify all the costs long-term, but god damn getting hit with a $4000 bill when I'm not making $4000 a month sucks balls. I think it's time to get a studio apartment in Chicago and decrease the living expenses while also pulling down a salary. Time to build up the reserves again.

Old posts

So I just now found some time to catch up on some past posts. I read the one from July 13 about the meditation and the Anatomy of a Disaster. A few years ago if someone had suggested meditation to me I would have been immature and ignorant and called you a fag. Thankfully I'm older now and a little more mature. I took part in a spiritual retreat back in January where I meditated for the first time. I found that if I do it at night it helps me get to sleep, I'm a notoriously bad sleeper. It also helps me get up in the morning feeling relaxed and ready to go. I did it for a while and like everything else in my life, nothing lasts forever. I get busy or stressed and just haven't made the time to do it. In my opinion, if you were able to shut the world off for 20 minutes mid day and do this, it would really be beneficial. At least from my perspective it would help. I don't see the advantage of this in the morning as I'm already well rested. But I'm at the stage of my life, or maybe just the type of person that I'm willing to try new things. I'm glad I went to that event and I do hope I find the discipline to start meditating again.

Momentum Trading

Not sure if you guys have had your eye on AIG, but it has recently made it way back in play after its huge reverse split. Yesterday it popped $8 and today it popped another $9 intraday only to finish where it closed the previous day. Talk about a great stock to play for momentum.

I actually traded this this morning. I was in and out way to fast as I have never traded a stock that moves so quick. You could blink and it would be up 2-3 dollars or down by the same amount. This thing was crazy but in a opportunistic way.

These movements over the past few days should keep it in play for the next couple of days. I hope to grow some balls and hold it for a longer move. This morning Laz of T3 shorted at the top at $29.30 and caught the entire move down to about $22 for a $40k chop. Which means he had 5k shares of this baby. I can only imagine the day.

By the way Jason, you have got to sign up for the free trial of at You would love the commentary and the morning meetings going over the landscape of the market and the trades that may set up for the day. I reccomend that you listen to Sperling and Redler only at first. Let me know when you check it out.

Wednesday, August 5, 2009


Do you guys want to set a time and place for Saturday? I was assuming we'll do the Huntington Beach area since Mark is in the middle of the three of us. Other than the pier and Main St I don't know that area well so any suggestions Mark? I'm pretty sure both those places are probably crowded on Saturdays during the summer. But I'm completey open on time and place so just name something.

WFMI: Called my company's action correctly post-earnings play

Man got this one right on the money. I may look to unload some stock options in the mid-$30's. Got a ton.

This is the email I sent to one of my Supervisors as soon as earnings was announced:

Amazing that the stock is up on the news... countering the “buy on rumor sell on the news” setup. The street seems to like something that was reported. Traders are anticipating the turn in the economy and getting way ahead of future earnings (PE’s are huge). We’ll see what happens to WFMI in the first 15 minutes of trading tomorrow. If we can hold up these levels we’ll probably head straight for $30 until we see resistance.

Watching a high flighe

I have my eye on FSLR. I have wanted to get involved in the stock every time it has a major pull pack. It is pulling back to support of 140 which makes it interesting. It is currently trading $60 off its high a month ago at $147. I am very interested with a pull back between 130-140. The options are just so damn expensive. I would most likely initiate a position with a call spread $5-$20 in length. I could also play it by selling a put spread for a credit to my account. Not sure yet.

Please provide me your input on this stock and this play in general.

Tuesday, August 4, 2009


Both are coming out volatility squeezes and look like they have further to run. If MS can break above $32 I think this stock is headed to $39-40 as the next serious level of resistance. As for BAC this stock could be headed toward $25 by the end of the year...

Going to be watching closely tomorrow to see where the setup and entry are. Just from a daily chart would like to see BAC retest the 200 SMA. As for MS breakout above $32.

SPF & the casinos (LVS, MGM, & WYNN)

Still testing intra-day trades and moving away from swing trading.

Stalked SPF all morning watched it drop precipitously in the open stabilize around $3.60 and fall until it found real support around $3.50 and begin it's slow ascent. Waited until it broke $3.60 and picked up a small 100 lot and released at $3.72 for a .10¢ gain.

So busy watching this home builder that I completely missed the huge move up in the casinos...

Market just doesn't want to quit... "The trend is your friend"

Monday, August 3, 2009

Stock Twits

Not sure if I ever blogged about this site. But I know I have talked to Jason Haas about it. But anyways they have a new feature stocktwits tv. One of the partners from SMB was on it this morning. Check it out. If you click on Live on demand and scroll down until you see the video live from the trading floor at SMB.


Looking for a continuing volatility squeeze from the current uptrend into a breakout. I put a $.05 trailing stop on this on the $1.04 intra-day breakout.

Here the intra-day chart:

Misc questions

What is the subscription price for T3? Is it possible to just keep signing up for free trials forever? Is the free trial the same feed as the subscription?

Mark, on the $1 stock trades, is that through IB? I only trade stocks there when I do a covered call so I really don't know the fees for stocks, but I noticed they charged me $10 to sell 2000 shares of F the other day. I had anticipated only trading options in that account when I opened it so didn't pay attention to the stock fees.

Taking profits in AUY

I did not blog about this position. But I took on a position with the trading group that I run at work. We bought 10 Sep 09 calls at $10 strike for .34 and sold today before they report tomorrow at .65 for a little less than 100% profit. As the trend for most of the earnings this season has been for the stock to rise into earnings and then fall the day of, our holding period was for 3 days and our exit was planned for the day before earnings.

The execution on the trade worked out very nicely. Chop!

Until next time.


Nothing big today did a few quick T3 inspired day trades today with positive results. Here's one example: Kept hearing chatter from the traders about MGM and saw the setup with the 50 SMA acting as support and $7.50 as resistance.

Grabbed this casino this morning about 20 minutes after the open 100 shares at $7.40. Sold at the intra-day high at $7.50.

Saturday, August 1, 2009

A few Posts from Dr. Stienbargers Blog

The Challenging Economics of Trading for a Living
A reader sent in this heartfelt personal story as a comment to an earlier blog post. I thought I would post it separately as a possible learning experience for those who aspire to trade for their livings:

This is the one advice I would have for anyone wanting to start trading for a living:

Open a new checking account (or empty your current account) and trade for a month. After each successful trade, send half of the gains to the checking account. The other half stays in your trading account to compensate for losses and increase your capital.

After a month, start paying all your bills from the new checking account. Keep doing this for several month and be totally honest. And see where that takes you.

This is the best wake up call I can think of.

I started trading for a living 8 years ago, because there was nothing else I could think of that I could do to make a living.

At the age of almost 50, I found myself alone. I had never worked. Had no education and had a physical handicap that prevents me from doing much manual work. All I had was a tiny savings account.

I looked into what I could do with it, and became very interested in economics and how the financial markets work. Actual trading was the part I liked least, the research, the part I liked best.

For the first 5 years, I doubled my account 4 times. I believed I was becoming a good trader. I was, but what really helped was that I was in the right sectors at the right time. The charts of my trades show many mistakes, but I was riding a bull, and making money.

At the same time, I was staying with a friend, and my expenses were at a minimum, so my account grew.

Four years ago, I had made enough to buy a small house for cash and still have a trading capital. Now I started having more normal expenses. I have always been a very frugal person and live on well below average expenses. And yet, my gains never completely covered my expenses.

I didn't follow my advice, because I never thought of it then. I paid my expenses from my capital rather than my gains. For the past 3 years, my capital has been reduced to almost nothing.

Today, I face a very uncertain future, if any future at all.

You might think I must be pretty mediocre as a trader. My expectancy is 1.46. For every dollar at risk I make an average of $0.46 gain. Or an annual average of 46%. Not bad. But the gains were never enough to pay the bills, and my capital melted away, a little at a time, every month.

I hope someone can learn something from this.

Now we can quibble about details of the writer's account; I'm not sure taking money out of one's account after each successful trade is the way to go, for example. The writer's broader point, however, is very well taken:

If you're going to trade for a living, you need to tightly control your overhead. You cannot assume that past, high returns will continue indefinitely into the future. You need to harvest money in the good times to ride out lean periods. You need to protect your base capital in case profits are wiped out. You cannot win the game if you cannot stay in the game.

What happens with too many traders is that they begin with aspirations that do not match their account sizes. They want to trade for a living, but their base capital will not support their goals if returns are anything less than consistently stellar. When good returns are achieved, those traders keep all their earnings as risk capital to build their account size. When the inevitable slumps hit, they take a decent percentage drawdown from a larger capital base. That can leave them worse off than when they began.

For instance, take a simple example: If I start with a capital base of $100,000 and make 50% in a year, keep profits as trading capital, and then have a 50% losing year, I'll finish my second year of trading with $75,000--down 25%!

A business owner cannot sell off parts of her restaurant to pay the bills--at least not for long. A baseball team owner cannot sell off one player after another in order to keep the team afloat. A solid business plan details how the business will be self-sustaining: how profits will support the ongoing maintenance and growth of the firm.

Trading for a living is much harder than people assume: profits after expenses must be sufficient not only for you to live off of, but also to grow your account. Little wonder that so many businesses begin with investor loans; that so many traders begin by trading the capital of others. It is difficult for any business to start up with enough capital to both support the founders *and* fund the firm's growth.

This is the "afflicting the comfortable" part of the blog. Few gurus, educators, and mentors will emphasize the financial challenges associated with making trading a living and even fewer will linger to tell the stories of those who have fallen short in their efforts. It is wonderful to lift your eyes to the stars, but always make sure your feet remain firmly planted on ground. Failing to generate and follow a workable business plan too often amounts to planning to fail.

For more on this topic, see the post on performance expectations for traders.

Teamwork and Trading Success

When producer Danger Mouse (right above) and rapper/vocalist Cee-Lo Green (left) created the Gnarls Barkley collaboration, the result was music that was qualitatively different than either artist had achieved previously. That music, nominated for four Grammy awards, is most familiar to the public via the song "Crazy". Perhaps even more creative is Chris Milk's video for their song "Who's Gonna Save My Soul?" The combination of the collaborative music and the collaboration with the video producer created quite a novel piece of work.

I've seen this with traders as well. Individually the traders achieve modest results, but teamed together, the whole becomes more than the sum of the parts. This is common at investment banks and hedge funds: getting the right people "on the desk" is a huge part of success. The right team inspires each other, informs each other, and brings the best out in each other.

When you're part of a team, you become accountable to your teammates. Suddenly that makes discipline a greater imperative. Many times we won't let others down, where we might cut corners on our own.

As in a marriage, we become greater when we find the right partners.