Tuesday, March 17, 2009

Side Project

Two people wanted a newsletter or newsletter-like service. Even though that is a relatively small number, I’m going to give it a shot.

If you would like to join, for $1 you will be given access to view CP's Letters from Wednesday until Saturday (March 17th – March 21st). Also, you can view next week from Sunday until Saturday (March 22nd – March 28th) for $2.50 more. If you want to see all of the posts and information up until March 28th, you can subscribe for a total of $3, a savings of $.50 (that would otherwise probably go to paypal; hence the encouragement to purchase all $3 worth at once).

What you receive:

- Morning “Coffee” Talk: By 9:00 AM EST, I will post some notes. I’ll talk about market developments, what I see as likely scenarios, economic news items to be aware of (numbers, businesses, government), and an S&P 500 chart (might be SPY or the ES emini, but they’re largely interchangeable).

- My real-time trades: I buy and sell stocks and futures.

- Technical analysis of stocks you choose (probably not more than 10 charts a day max, but it depends on what you desire).

- Technical analysis of intraday ES (S&P 500 emini) charts. Largely 5, 10 (sometimes), and 15 minute charts. This will be updated throughout the day.

- Intraday charts of several stocks I am following (plus one to three outside suggestions).

- Chat box (a la jabify) to ask questions in real-time.

- An analysis of the close.

This week and next week are preliminary weeks. I do not know how long I will run this side site, but I wanted to give it a try, especially with a break from school next week and limited stress (I have A’s!) this week.

If at any time you want a refund, let me know. No explanations are required. I’ll just tell paypal to put the money back in your account right away.

If you would like to see something else on the site, let me know.

Suggestions, Questions?


Monday, March 16, 2009

A Check Up

I think it is partially luck, a bit of excess caution, growing confidence, psychological development, and some nice charts, but I haven't had a losing trade since I tried to trade the after hours emini market several weeks ago (I wasn't used to the speed and the limited liquidity). All trades since then have been winners with the exception of one break even trade in the futures market. I don't mean to brag, I just want to say that it is possible. Enough of the horn tooting (watch me screw up tomorrow's trades =D)

On to some charts (all continuations of yesterday's postings):

Look at that beautiful shooting star, the turning stochastic, the decent volume, the RSI bouncing off of 50, the resistance at ~775 (look back to late February), and the shitty news, and I'd just about want to buy a put or two. Be careful of good news, and as always, watch the financials for hints as to the strength of any rally or pullback.

I shorted this today. It held on stronger than I would have ever expected, but I came out profitable (my highest yield with real money yet). While the S&P500, GS, and APPL all broke down, JPM held on until the end of the day. Look at the resistance formed by the previous gap down around 25. I used that as an entry point.

GS had the perfect opening. Gap up, easy short. Unfortunately I was in class, but one days like today (short term overbought) a gap up is definitely suspicious, especially if there wasn't any news to justify such a blip. I could see this continue downward tomorrow.

I don't really know what to say about GDX. Looks like it's having trouble getting above its 50-day MA; but its stochastic is not in overbought territory. I'd be extremely careful, but I'm still looking for a pullback.

I didn't jump on this ride, but some lucky bastards did! =D As long as the market continues down, I like this. But my disposition wouldn't allow me to hold this overnight. I'm just too scared. It really looks like a good deal though.

I like trading AAPL. I always get an image of unsophisticated (trading wise) fanboys/girls who do not know the difference between an MA and a Stochastic. This could be completely incorrect (I wouldn't doubt that most of the trading is done by institutions through bots), but AAPL still has beautiful range. I tend to keep my eye on it for a good entry.

Take care.

Sunday, March 15, 2009

A Few Charts

Check out Trader Mike for several good charts as well.


Friday, March 13, 2009

Velocity, Acceleration

It's really hard to show the "speed" of stock movements without recording trading in action. I'm guessing that's why most sites don't talk about the speed of a movement very much. For those without trading software (it's a necessity for serious trading), you will have an even harder time getting a feel for the speed of whatever stock, future, whatever you're following. Yes, I used to constantly refresh the charts at Zecco and Sogo Trading when I had a small account size. It helps, but the lack of streaming updates detracts from your ability to feel things in action. And, it limits your ability to quickly enter an order.

Scott of Fear and Greed Trader used to talk about getting a feel for the markets--learning to ride the "waves," getting in and out as movements started and finished. I like to imagine that he was talking about what I am feeling during my trading sessions right now.

What do I mean by the words "velocity," "acceleration," and "speed?" I think of it in terms of physics (using calculus, you could probably write some pretty spiffy trading indicators). Velocity and speed are similar. Both basically tell you how fast you're going (velocity gives you direction too: for our purposes, positive or negative). Applied to trading, velocity would probably be something like +/- $.03 per second. Acceleration is how fast the velocity is changing. If the velocity is at a constant +/- $.03 per second then the acceleration will be zero (velocity/speed is unchanged). This is rarely the case in real life. Instead, the velocity may be something like -$.01 per second meaning the velocity is decreasing at one cent per second (i.e. +$.03/sec, then $.02/sec, then $.01/sec...). And, of course, the velocity and acceleration are in a constant state of flux--all of which depends on the entries and exits of many, many traders and the direction the vast majority feel to be profitable.

How does this all fit in with successful trading? Well, I suppose you don't really need to understand things in the form of exact numbers like I wrote out above. The examples are just to give you an idea of what I'm talking about (and quite possibly encourage someone to write an indicator!).

It can all be done without the above. Just look at the chart (it really needs to be streaming) of the security of your choice and watch the candlestick movements. If things are moving pretty fast and begin to slow down, speed is waning and there could be a possibility of a reversal (depending on the location in relation to resistance/support/etc) or consolidation (look for maintained price, uncrossed MA's).

How fast are people bidding up the price? How fast is it falling? If the price is slowing, that means one side is gaining power over the previously dominate side (either through a diminishing faith or a ambush in the opposite direction). The speed at which a stock progresses also tells you how the traders are reacting psychologically. Are they hurriedly picking up shares in fear of losing short profits? Perhaps, they are overreacting to good news, or bad.

Speed is something that feels better to absorb while it happens. A bar could be a dollar high, but did it get there in one quick burst, a violent battle, or over a stable ascent? You can't really tell just by looking at a bar chart. Just because it's a 5 minute chart and the bar is $1 high, doesn't mean its speed was a constant $1/5minutes. There's another whole story between the lines (i.e. candles).

Learn to absorb it.

Wednesday, March 11, 2009


Anyone interested in purchasing a daily (weekly optional, for a lower price) newsletter? Each evening, before 9PM PST you would receive an email containing a PDF file, the newsletter.

In the newsletter:

- I'll discuss what happened in the markets that day and how I interpret the price movement (e.g. was it a short covering rally?, the start of a bear market rally?, a potential short, long).

- I'll focus on various points throughout the day on the S&P500 and occasionally the DOW (I prefer trading the S&P500 eminis and find it to be a better representation of the market). I'll touch on where ideal points of entry are and how I would identify them before price reaches that point (it does you no good to identify good points of entry after you can enter at the identified point).

- I'll also suggest possible scenarios for the following day. Sometimes it is easy to point out the most likely scenario. Sometimes having a few in your mind is necessary to stay on top of the game.

- With each newsletter I'll point out a few stocks that I am currently following. For instance, I followed AAPL for the last two days, successfully trading it a couple times for nice profits. I'll let you know what I am looking for and what ideal entry points are or are not. I'll list some trades I took, and why I took them.

- Furthermore I'll update you on possible news and developments (oversold or overbought conditions, etc) that you should keep in mind and what to expect should more information be released.

Also, I will make a deal that anyone who does not recoup the costs of the newsletter (assuming a reasonable beginning account size) will get a refund. Of course, you have to actually utilize the information in the letters. I'll have to consider exactly how we will quantify this, but I don't aim to rob you of your money. I want you to be successful, as it will reflect well on me.

Furthermore, despite limited time during the day to actually trade the markets (which is why I hope to make a little cash by writing information for others who can trade all day), I have made my friend 6% in overall profits in the last three weeks or so. It's not much, except when you consider the short bursts of time I actually have during market hours to trade (I love making $200 in 20 mins or so =)).

Let me know what you think.

Not sure about prices yet...would require PayPal payment as well.

He Hit the Number, and So Quickly...

I posted a quote from a newsletter two weeks back (link) that I find rather amusing at the moment. Here's a section of it:

"For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate."

Other parts of the letter suggest a lower P/E which would definitely disqualify the 666 number as the ultimate low (at least from my understanding). What I find amusing is not that the analyst happened to pick the current low right on the number (I'll forgive the lack of fractional accuracy), but that he suggests we will reach the low by October. We did. We also reached his suggested ultimate low two weeks after it appeared in print.

If the market continues to do crazy things, like today, I wouldn't be surprised to see it collapse lower and, as of today, think it will go lower. I just do not like the action, and do not feel as though it is rallying action. Follow the financial stocks, though. They will lead the way. Any more good news (such as the Citibank news) will cause euphoria, but as soon as they lose steam, they'll come crashing back down.

Something to keep on your bullish radar is Trader-X's recent post on the reinstatement of the uptick rule. Such a change in how the game is played may cause more euphoria than any banking news could possibly hope for. Be careful. That has possibility of rekindling strong bullish sentiment.

Monday, March 9, 2009

Historic Chart

I found this on my hard drive the other day, and I thought I would share it. If you go to the site mentioned on the image, you'll find an even more recent chart showing the current decline of the S&P500 P/E ratios (not yet below 10).

This chart will hopefully give you an idea of where the current market stands. There have been "double tops" before that have not signaled the end of the market, something pointed out every now and then by the doomsayers. Also, there are other times where we have dipped below the outlined consolidation levels. While the chance for a Great Depression like dive exists, I personally think we'll get some movement towards the upside as soon as P/E ratios dip below 10. According to the data I find at Shiller's website, the S&P500 P/E ratio is about 12 as of March 3, 2009. In order to get real bullish sentiment, I think we'd need to fall to ~7 or so. We could fall lower, but that level 5-8, is probably as good as it will get for buyers.

Then again, the doomsayers could be right: the United States could just burst into flames.

Saturday, March 7, 2009


Motivations, as a friend once told me, are what you need to figure out if you want to understand people. To begin the process ask, "What does this person want?" The benefit of knowing what the other person (or group of people) want is that you can use this information to collate your own wants and desires and see if they are opposed or in congruence. The difficulty in doing this, is that many people will not state their motives up front, or, often, they do not understand or want to understand their true motives.

This can hurt you if you choose to take the person's words at face value. For instance, if someone says, "I want to make you a better person," but constantly performs actions to the contrary (e.g. beating, name calling, neglect) then taking them at their word will lead to confusion: "This person is trying to make me a better person, but I keep feeling terrible and getting worse." The symbols (words) used to convey reality conflict with reality. Obviously, this is going to end terribly for the person who continues to believe the person performing the abuse.

Perhaps even more insidious is when the abuse is not overt. Take CNBC. They state that their aim is to help the investor better understand investing and to make money. However, the views presented are often conflicting (even from the same source, day to day), and since most people cannot or do not record the shows for future reference and reflection, they forget the advice that has hurt them and end up assigning much of the guilt of poor performance to their own misunderstanding.

The base of this problem stems from the misrepresentation (whether intended or through a lack of self-understanding on the hosts) of motive: "We are here to help you invest." If this were the case, why so many ambiguous or outright incorrect statements? It is because their true motive conflicts with your motive to be a better investor through a better understanding of the business world. They are reflecting your motive back onto you. But that is not their motive.

CNBC's motive is to profit from advertising. As many know (whether or not they act upon the information) biased, skewed, exaggerated, "yellow" journalism attracts a larger audience than fact-based, "boring" analysis. People like watching arguments between people who share extreme and conflicting views. It is exciting. CNBC's motive is to provide you with this entertainment. It is how they increase their viewer base and how they increase advertising revenue.

Providing their motives to the viewer (or helping the viewer better understand him or herself), however, would hurt their bottom line. It's not in their best interest.

But it is in your best interest to look at the motives (and even the general world view) of those who you read, watch, and follow. If you take people at their word without confirming their word with action and outcome, your successes will be hit and miss.

----- In Relation to This Site ------

The above can stand on its own, but I wanted to post my own motives for maintaining this site (at least my best understanding of what my motives are). As many of you may have noticed, I no longer have advertisements on the right hand side of the site. I'll be receiving my check from Google soon and have decided not to continue placing hope in profiting from advertisement. I guess, the amount of time I dedicate to thinking about how I can get traffic up and clicking on ads is just not worth the amount of return I can get. I'm much happier dedicating my time to in depth analysis of economics and markets (and whatever else interests me! This is my site) and making money through the markets themselves using the knowledge I gain through the maintenance of this site.

Yeah, the last sentence was a little convoluted, but the main point is: I want to focus on what makes me happy. If you haven't heard, most major sources of journalism are in the red. Although I'm sure there are blogs that make enough to support a human life, I think many do it with other products (Tim Syke's alerts/videos/etc or WeeklyTA's advisor service). I may do that at some point in the future, if anyone wants to follow me throughout the day. But, at the moment, I don't have enough time to be online throughout every trading day, and I doubt enough experience to confidently direct beginners; not to mention, I am having enough success making money trading that I really don't need those extra sources of income. Eventually, I hope such sources will pale in comparison to what I make trading.

Instead, what I hope to gain from this site is a few new friends, an increased depth of knowledge about economics, trading, human psychology, and politics (or whatever floats my boat--such as terrible cliches), and a better understanding of the English language. Truth is, I enjoy to write. Always have, always will. The creative process stimulates me, keeps me alive, and provokes another activity I love: thought.

I'm sure there are other reasons I continue posting. But without ads to the right or a detailed record of my successes (while it may help some bloggers to present this information--and I do not judge them, and enjoy many of their straightforward p/l and goal charts--it tends to hurt me, puff up my sense of superiority or inferiority, and detract from my learning/trading) or a trading service, I thought some may be wondering why I am writing. Well, the above gives some idea.

I'm no CNBC. I hope I am not abusing any of you either. But, my motives, while far more complex than I can really understand (just like everyone else's), are important for you to know while reading my posts and important for you to consider. They'll change with time. And I'm definitely no selfless, savior figure: I don't intend to make you a trading or investing God.

But, then again, CNBC doesn't aim to either.

Friday, March 6, 2009

Another Poker Analogy

In online poker, all the chips on the table have been paid for, and with each subsequent pot the house takes its "rake" (i.e. a small fraction for hosting the game). Any money you make in online poker comes out of the pockets of those who you are playing against, and even if you were the best poker player on the table and looted all the stacks, you still wouldn't leave with all of the money that had been on the table. This is because of the rake fee.

The stock market is similar. All of the money you make comes from the pockets of the other participants. After each trade a commission fee takes place to cover the transaction between the two individual traders/investors (players). At the end of the day, even if you were the best trader in the world and were able to drain the participants of all their capital (impossible for many reasons, but for theoretical purposes--) you would still walk away with less money than had been put into the market (sans dividends, should the stocks have any) because of broker fees.

I guess the message I am trying to get across here is that for every winning hand or profitable trade, there will be a losing hand or a losing trade on the other side, at least when markets grow faster than the underlying companies and economy. Those who come out on top are relatively few, because they tend to obtain the "stacks" with their confidence, skills, and eventual ability to buy the pot. The others who come out on top (assuming they have a good business model and aren't wasting money on excess people/equipment) are those who bring the transactions together.

Oh, and another thing: on average, people like to think they are better than average poker players. I think the same goes for the financial world.


Thursday, March 5, 2009

Surrendering to Gravity and the Unknown

Shorting is a necessary tool for any serious trader. Gravity--i.e. entropy--will always take hold, and things will eventually fall. Furthermore, things fall faster than they rise. How much more needs to be said in favor of shorting?

"Gravity" off of Thirteenth Step by A Perfect Circle.

Wednesday, March 4, 2009


Fear is always the result of your beliefs about the threatening nature of the environment. What could be threatening about the market? Nothing, if you had the confidence and completely trusted yourself to act appropriately under any given set of market conditions. Essentially, what you fear is not the markets but rather your inability to do what you need to do, when you need to do it, without hesitation.

- Mark Douglas, The Disciplined Trader