Wednesday, March 31, 2010

From Charts Gone Wild.

It is an hour long video, but it is interesting discussion about left brain vs right brain and what trading style fits your dominate side of the brain.

My Ideas vs Following others...

So just glancing at my summary of results. I was reviewing the section where I classify my profits from the source of the idea. So far it looks like I am best just following my own ideas. Do not get me wrong IWO has been and will continue to be a great educational source. But I have come to the realization that he structures his portfolio in such a way that it only makes sense to do his trades if you do all of them. He is reallly good about keeping risk balanced. So when you pick and choose you may be picking the unlucky few that loose money. But all of his positions are in the context of the overall portfolio. I am not saying I won't take any more of his trades but I will be that much more critical. This month I found myself and my orignal ideas doing well even though I got stopped out of a few of my own trades it looks like most of my porfits for the month of March were wipped out with the IWO trades that I took. And looking further it looks like I do even worse when I take one of IWO's ideas and try to tweak it.

Just an observation.

Citi is selling Prime America

I do not personally like the company but I think it will be a hit. They are pricing 24 million shares at $12-$14 per share and they have the option to sell an additional 2.7 million shares if demand for the stock is strong. Last year Prime America as a stand alone unit had $2.2 Billion in revenues and $495 million in Net profit. If I am doing the math right that is about $18.53 in profit per share [$495 million NP/ (24 million initial issuance + 2.7 million Citi remaining shares)].

I think I want to get in on this one. I think the ticker is going to be PRI. I have it on my watch list so I know when it trades publicly.

My personal page is complete

I have 3 components to my personal page. Section one is a short bio and picture, section two is my trading performance, and section three is my evolving trading plan.

New Positions


In a post a while back that I can't seem to track down I mentioned that I was interested in PFE as it traded closer to 17 and it 200 day moving average. PFE is currently trading right on its 200 day moving average and it seems to be acting as support.

I am buying 5 17 Jun '10 calls @ .80 for a total of $400.

Stop: 16.75 ($130)

Entry: 17.23

Target: 19 ($610)

Risk vs Reward: about 1:5

I would be interested in selling the 16 puts if this name pulled back further.


I am also interested in COP. I am looking at buying a ratio spread in August. More specifically I like the idea of selling the 50 put and buy 2 of the 52.50 calls. I can put one of these trades on for 1.12.

Stop: Break of 200 day currently at 48.26. Risk (335)

Entry: 51 ish

Target: 56-58 ($700-$1000) Reward

Risk vs Reward: about 1:2 to 1:3

For Traders Looking to Form and Join Virtual Trading Groups

Dr. Steenbarger is there again...

I think this post of Dr. Steenbarger may be just what we were looking for to find people like ourselves. I am going to post our blog and my email address and see if I get any feedback.

Monday, March 29, 2010

Psychological Breakthrough

Today I closed out a trade for about a $40 loss. In the past this would have drove me nuts and I would have rather gambled further and continued holding, thus taking on risk, than take the small loss. Especially once I started tracking my win/loss percentage taking even a small loss was somehow looked at as failure. I was more concerned with an internally generated scoreboard rather than the total profit and loss. I used to want to book a $1 gain than a $1 loss. This makes no sense as a win percentage of 100% means nothing if they are all $1. But now that I'm planning on keeping the average $ and % gains and losses in addition to the overall win/loss percentage, it allowed me to take the small loss and see things in the big picture. I'm no longer concerned with the win/loss percentage on a stand alone basis and instead more concerned with the combination of the average $ and % gains/losses.

Example 1:
70% wins looks good on paper by itself. If that were all I was tracking I would be happy psychologically. But if my average gain was $500 and my average loss was -$2000, then your expected loss should that trend continue is negative, (.70)(500)+(.30)(-2000) = -$250.

Example 2:
55% wins, average gain = $500
45% losses, average loss = -$200
Just eyeballing the percentage alone I would be thinking that after commission you're not doing very well unless your position size is large, which I'm not. But the combination of the dollar amounts and win percentage tells me much more and will allow me to cut even small losses in the future without effecting me nearly as much psychologically as in the past

I believe psychology plays a large part of investing and that's part of why the efficient market hypothesis is crap. It took me a long time to sell something at a loss, especially if it was a large loss, if it was no longer something I believed in. I felt like I was stuck with it and I had to keep it, even it meant five years, it has to come back in the long run right? Wrong, but it took me a good number of years to get comfortable with accepting a loss and moving on. So had it not been for this blog forum I don't think I would have added the average win/loss to my spread sheet which I now feel has helped me manage risk better.

Sunday, March 28, 2010

IWO in Action Follow up Post (SBUX)

I am not sure I am convinced with only looking at 1 day of volume to see how many people might be following IWO's trade recommendations. First like you said most of the volume takes place at or around the ATM options. Also SBUX has had a great run over the last few months and you can see that its first level of support was around 24 from its bull flag breakout highlighted in the chart below:

So this was a natural place in my opinion for people to buy puts to protect their gains. This is illustrated well if you look at a daily chart for the 24 put for the past few days (See Below). Notice how it traded almost 2x the amount just 2 days prior when SBUX started to breakdown on the daily chart above.

You might even be able to go as far as saying the people who put protection on 3/24 for .10 might had realized by 3/26 when IWO sent out the alert that 24 support looked like it was going to hold and the majority of the volume could be attributed to them cashing in on some profits from their hedge. I don't know but its a possibility. Now if we did not see the increased volume 2 days prior than your observation might be more probable to me but looking at the volume for the 24 put kind of just tells me that it was a coincidence that that particular strike did more volume than anyone else and IWO happen to send out a trade alert that same day. To me it did the most volume because technically in the short term that is the most important price level.

Saturday, March 27, 2010

IWO in action

So I've been curious as to how many people are acting on the IWO trade recommendations. We've all seen stocks move in after hours when Cramer hypes something. So just for the hell of it I looked at the SBUX option activity for a trade he recommended on Friday. Below are the results. Normally you see the most volume at and just above and below the current stock price. As you can see here, the $24 put recommendation has more volume than the other nine strike prices combined.

Call Volume




Up 0.15








Up 0.03








Down 0.07








Up 0.08








Up 0.03





Put Volume




Down 0.03








Up 0.01








Down 0.06








Down 0.02













An interesting Link!

The trader who turned $400 into $200 million--> Richard Dennis

Learning How to Trade: Managing the Psychological Risks

From Dr. Steenbarger

A couple of years ago, I posted an article (now available as a PDF) on managing the psychological risks of trading. I encourage you to review that article; it offers an important perspective for those learning how to trade.

The financial risks of trading are fairly well known: If we size positions too large or incur too many runs of losing trades, our capital will become depleted. Lose half your money and suddenly you have to double your remaining capital just to return to breakeven. If you trade every day and average 55% winning trades, you'll incur runs of four consecutive losing trades roughly every month. Size those trades too large and you'll be looking for a new vocation or avocation.

(Another article in PDF worth reviewing is Henry Carstens' Introduction to Testing Trading Ideas. Even if you're a discretionary trader, knowing your typical win ratio, average loss size, average drawdown, etc. helps you gauge your financial risks).

When you are learning to trade, those financial risks turn into psychological ones quite quickly. We might have a 55% win ratio, but we don't know how that 55% will be distributed over time. Consider Henry's P/L forecaster illustrated above. We have a small trader with a $33,000 account who has an average win equal to their average loss ($1000 per week after commissions) and a 55% winning percentage. The above chart shows one possible path for their two-year (100 week) P/L.

Overall, the trader is quite successful. The two-year return on capital is 33%, enough to support a career in the portfolio management world. But note that the first 15 weeks are spent in the red. Moreover, there is a drawdown late in the period in which nearly one-third of profits are lost. These adverse events--entirely expectable and having nothing to do with altered or poor trading--create many of the psychological risks of trading.

Most new traders, facing 15 weeks in the red, will change what they do, abandoning profitable trading methods. Many more, facing a profit drawdown, will shut down or change their methods, again drifting from their strengths. The resilient trader learns to expect these setbacks as a normal part of doing business. No matter how good you are--and I work with some very good traders--you will have extended periods in the red. The psychological risk for those learning to trade is not that you'll lose your money--proper position sizing and risk management can prevent that-- but that you'll lose your nerve. Just because you have an edge doesn't mean it won't feel at times like you're on the ledge.

Thursday, March 25, 2010

This month has been a yoyo on my account

This month has been very volatile in terms of my account value. I have been moving between 15,600 and 16,700 all month. I am currently at about 16,000 net liquidation value. I have been stopped out of about 50% of the positions that I have put on this month. The biggest urge that I am fighting right now is wanting to close out positions that are working. I think that many times we are all guilty of trying to wash away losses with what little gains we may have in positions that may have just started working. I know I am guilty of this on many occasions. I really think this is the reason I leave a lot of money on the table because the last loss I made is always in front of me. Which if you think about it is completely ass backwards. You need to be able to put your losses behind you and be forward looking. I mean learn from those losses but you really need trade amnesia when looking at current positions.

Another thing that I found myself doing this month is going long when stocks had already had a big move and really looked extended on the charts. Driven by fear of missing the next move. I did not realize it at first, but as I got stopped out of my positions I started looking back at the charts and realized I did not have the best entries. It was this realization that made it apparent to me that I would be better off analyzing potential trade ideas outside of market hours. As you mentioned it is much too easy to act on impulse during the market hours. I know there may be some opportunities missed but I am okay with that.

I know I have been talking a lot about what I have been doing wrong and not much about what I am doing right. I do think it is just as important to spend time focusing on what you are doing well vs wrong. To be honest I think that the first and foremost thing that I am doing well that I have sucked at and failed to do in the past is analyze my trades and define my methodology to the market. Coming up with a theme towards my approach to the market. Drawing conclusions based of analysis of trading results. Also acknowledging and identifying my mental state when putting on trades. My risk management has come a long way as well. I guess you can sum it all up by saying that I have become more process driven rather than results driven. I think that if you focus on the process the results will come.

I continue to learn more about the markets and myself everyday.

Wednesday, March 24, 2010

Still want some oil exposure going into summer

Toward the end of February I was trying to get some exposure to oil going into summer via RIG. I was stopped out because my entry flat out sucked. Then I tried again recently with HES and was stopped out yet again. Here again I think entry is the common theme. So I think I need to make a few tweaks with respect any energy trades that I put on. One is I either need to get a better entry or I need to reduce my trade size to allow for a wider stop loss area. I can also play directionally with some limited risk/reward trades buying call spreads or selling put spreads. I am leaning towards the latter as I prefer to collect the credit when using spreads.I am currently looking to sell Put spreads on the following oil names: DVN, HES, and maybe something with USO. But I am going to sit on it and wait to see what the oil numbers are that are coming out today. I am really starting to prefer analyzing potential positions when the markets are closed as I don't feel the need to rush and put something on at the fear of not being able to get in. I really think this is the reason I have entered a few positions at bad prices. I get excited and emotional about wanting to add positions. I have to remind myself that there is no rush and there is always opportunity.

I continue to work towards a passively active trade management style. If that even makes sense. I want to manage my portfolio and be involved on a daily basis. But I do not want to be tied to the screen 24/7 watching my positions.

I will post if I make a move in any of the oil names mentioned above.

Just to keep me honest no positions will be added today. I need to analyze potential plays tonight and will get ideas ready for execution tomorrow or in the coming days.

Monday, March 22, 2010

How to Get Off the Performance Roller Coaster

From Dr. Steenbarger

Do you find yourself on a performance roller coaster? This is a situation in which you make money for a while, begin to think you have it all figured out, only to fall back, lose money, and feel like a rookie all over again.

A while back, I wrote about the performance roller coaster and some of the emotional factors that sustain it. The gist of that important post was that how we process wins and losses affects our subsequent trading--and sometimes contributes to winning and losing streaks.

I just finished an enjoyable interview with Mark Wolfinger of the Options for Rookies site. One topic that came up was the way in which traders identify with their P/L. Once a trader's sense of identity and esteem becomes caught up in profits and losses, the trader begins an emotional roller coaster simply due to the natural ups and downs of markets.

There's an important difference between *wanting* to make profits and *needing* to make them. When the trader *needs* to win, performance pressures are magnified many-fold. Even normal losses can make the trader feel like a loser--and then trade like one!

Conversely, when our self worth becomes too wrapped up in trading results, periods of profitability can easily lead to overconfidence and even grandiosity. It's not at all unusual for traders to stop doing what was making them money once they've had a series of winning days or weeks. And that leads to the downhill portion of the roller coaster.

The advice I shared with Mark in the interview and that I've mentioned elsewhere is that it's vitally important to be psychologically diversified. If you're counting on trading to provide your sense of accomplishment and value, losses will become unduly threatening. If you don't have aspects of life to draw upon when trading goes bad--relationships, career, personal interests--it's going to be difficult to rise from the slump.

It is possible to care very much about trading and work hard at it without riding a performance roller coaster. You can feel very good about your evolving process as a trader, even as you struggle on a given day, week, or month with making money. Once you take yourself out of the equation, it becomes far more easy to focus on markets and the patterns we trade.


Sunday, March 21, 2010

Online Broker Analysis

Basically Dom's got it right using TOS free for their analysis, and IB for their execution and pricing. Why not take the best of both worlds.

Saturday, March 20, 2010

March OPEX/Current Positions

I was kind of guilty this month of staying idle once I hit my monthly target of $2000 early. I should really be looking for solid ideas objectively, no matter what the current months gains/losses might be.

Thursday, March 18, 2010

A few things I am considering

I am considering a few things in the context of my trading strategy and trading business plan. I mentioned the other day that I am going to at a overall trading strategy to my business plan, Trend/Momentum trading. This will act as the overall theme to my trading and all my trades will be in the context of this strategy. So I guess that then the strategy has to be broken down on a more micro level as to how I trade the trend, I guess these would be called tatics? I haven't ever written a business plan but I vaguelly remember the elements from a marketing class I took. To me the tatics would really be comprised of the different options strategies that I would use to play up, down, or sideways markets. And I think if I break this down with more granularity than I will also need to break down my risk/reward constraints. Because I think a position like and Iron Condor is much different that a flat out buy. In an Iron Condor I may be looking for a minimium return on capital to put the play on. I know on flat out Call and Put purchases I want a minimum 1:2 risk vs reward (based on my stop loss, not on the capital required to put the trade on). Although a call/put purchase in itself is also a limited risk trade by nature like the Iron Condor I find it more likely that I would leave an Iron Condor on and potentially let it expire vs letting a call or put go to zero. With Calls and Puts I am trading directionally and if it doesn't go in the direction of my position than it makes sense to get out of the position when the stop is hit and not loose all the premium. But with an Iron Condor when you are betting a stock will close in between two ranges it may make sense to hold onto it even if it briefly trades out of the range. This example is limited in scope but I hope I make sense at where I am getting at.

I guess I am just trying to get at the fact that I think I am ready to take my business plan through its next iteration and add more detail and clarity.

Another thing I am thinking about is a way to limit my scope of stock to trade. As we have found out there is an endless pool of ideas out there. So one thing that I am considering is Focusing on the stocks that are in the IBD 100 which is a list that I look at regurally and are realeased every friday which I can then download and upload into a watchlist. These stocks are ranked and rated based on multiple fundemental and technical criteria. I will elaberate on this further as I explore it more. But I would also leave it open to make trades on ideas that come from and a few other sources that I get ideas from. I would just be limiting my own search and would rely on these other sources to put ideas in front of me that I may not have seen on my own. In addition I would leave also include the SPY and VIX open to trade as well, mostly as hedging vehicles to my portfolio.

Please share your thoughts.

New Trade/Current Holdings

I bought an Apr (SPY) 117/113 put spread, and took the IBM straddle and RIMM double diagonal trade suggestions. Those have been the only two ideas lately that I liked. For the next few months I'm going to probably stick with my current level of activity and passively play small defined risk positions to try and bring in some income while I concentrate on CFA test prep and preparing to move to Chicago. I'm looking forward to jumping in and managing full time in June.

Wednesday, March 17, 2010


This is irritating. I just did a post and published but as I was clicking off the site I saw that it said "error." So I'll try to reconstruct it again. It went something like this: I just signed up for Twitter on the JasonAndrew email and realized that in addition to opening up the blog and hoping others find us, we should start to seek them out as well. I have some ideas for this but really don't have the time or heart for it until after the CFA exam. Some things are starting to sink in subconsciously. I'm still going to Chicago in search of contacts, education, information, etc. that will help me/us along our journey, but regardless of what produces I think we should start to cultivate our own community as well.

SPY up 14 days in a row

The spy has now beat its all time record by two days, and there is nothing to say that it can't continue. But I think odds are there will be one down day between now and opex. There is no way to no how much down it will be but you have to tkink that people are starting to get nervous and are itching to book some profits. I think there is still room to the upside but I would think further upside would be healthier if we could digest the move of the past few weeks. I mean we are up 12% from the recent correction.

Lets see how the rest of the weout pans out.

Another Options Website This is the author of the book I'm currently reading on the Greeks. I just took a look at past blog posts and this is something I'll definitely add to my list. Lots of relevant ideas and education for where I'm at right now. Just wanted to share in case it works for you.

Getting long



McDermott International, Inc. (MII) is a global engineering and construction company with specialty manufacturing and service capabilities. It provides a range of products and services to customers in the energy and power industries, including utilities and other power generators, major and national oil companies, and the United States Government. The Company operates in three business segments: Offshore Oil and Gas Construction, Government Operations, and Power Generation Systems. In December 2009, the Offshore Oil and Gas Construction segment completed a transaction with Oceanteam USA involving the acquisition of an approximate 50% interest in a vessel-owning company, which owns a subsea construction vessel and a 75% interest in another company, which intends to construct a similar vessel. In September 2009, MII’s subsidiary in the Power Generation Systems segment, B&W de Monterrey, acquired certain assets of Instrumentacion y Mantenimiento de Calderas, S.A.

Buy 5 May '10 26 calls @ 1.45

Entry: 25

Stop: 24.50

Target: 28.70

Risk:  265

Reward: 950



Guess?, Inc. (GUESS?) designs, markets, distributes and licenses lifestyle collections of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. The Company’s apparel is marketed under various trademarks, including GUESS, GUESS?, GUESS U.S.A., GUESS Jeans, GUESS? and Triangle Design, Question Mark and Triangle Design, a stylized G, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO and MARCIANO. The lines include collections of denim and cotton clothing, including jeans, pants, skirts, dresses, shorts, blouses, jackets and knitwear. The Company's operates in four segments: retail, wholesale, European and licensing. During the fiscal year ended January 31, 2009,(fiscal 2009), 46.7% of the Company’s net revenue was generated from retail operations, 14.2% from wholesale operations, 34.3% from European operations and 4.8% from licensing operations. On January 16, 2008, the Company acquired BARN.

Buy 3 Apr '10 50 calls @ .70, Earnings today after the bell

Entry: 45.70

Stop: 45

Target: 50

Risk: 50

Reward: 510



Hess Corporation (Hess) is a global integrated energy company that operates in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place principally in Algeria, Australia, Azerbaijan, Brazil, Colombia, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Peru, Russia, Thailand, the United Kingdom and the United States. The M&R segment manufactures refined petroleum products and purchases, markets and trades, refined petroleum products, natural gas and electricity. The Company owns 50% of a refinery joint venture in the United States Virgin Islands. An additional refining facility, terminals and retail gasoline stations, most of which include convenience stores, are located on the East Coast of the United States.

Buy 3 Apr '10 65 Calls @ .99

Entry: 62.50

Stop: 61

Target: 66-69

Risk: 125

Reward: 475-1,100


This one does not meet my risk vs reward profile but I wanted to try it out. It is why I am only trading two of them.

Tuesday, March 16, 2010

Virtual Trading Groups: Leveraging the Learning Process

This is exactly why we have this blog and why I want to try and open it up to find a few more people.


from TraderFeed

A while back, I wrote a post that described how trading dreams come true. Since that time, I've seen many traders fall short of their goals, and I've seen a good number find success.

An unusual number of those that succeed do so in part because they find opportunities for mentorship. I'm not talking about the seminars, classes, and other events that offer "education" for traders. Rather, I'm describing a professional relationship in which a more senior trader models proper trading for a junior trader; offers timely feedback to the junior trader; and helps the junior trader structure his or her learning process.

It's rare to see entirely self-taught individuals achieve world-class levels of performance. More often than not, whether in athletics, performing arts, or trading, talent develops by being exposed to talent. It does not form in a vacuum, except perhaps in very unusual cases of early prodigy (Bobby Fischer in chess comes to mind).

One potential advantage of affiliating with a trading firm is that this can afford you an opportunity to benefit from mentorship and learning-by-example. Not all trading firms cultivate a mentorship culture, however. Many traders keep to themselves, perceiving no incentives to sharing their time and ideas with others. My experience is that the failure rate of new traders is significantly higher in firms that do not follow education and training with ongoing mentorship.

For those who cannot affiliate with a trading firm, finding mentorship can be even more challenging. I have long championed the idea of "virtual trading groups", in which like-minded traders (those who trade similar markets and strategies) extend their self-coaching processes to a group-wide level. If I learn a lesson in the markets or discover something that works for me and four other traders in my group do the same, we have just created a situation in which all of our learning curves can rise exponentially.

The key is finding those like-minded traders. It *can* be done, but it takes initiative and a willingness to reach out to others, put oneself out there, and exercise a creative vision for what a virtual group might look like.

Thousands of traders individually try to reinvent wheels every year. How much more could they achieve by joining forces, sharing strengths, and mentoring each other?