Thoughts

What a weekend it was! Memorable in many ways, socializing and networking.

Met and exchanged views with so many local "celebrities" in the local markets, in their own way or another. I shall not attempt to describe the interaction, as my journal is mainly about the financial markets and my trading journey. Here's a quick snapshot of key highlights, not in any order of importance.

* Trade what the market tells you, not what you anticipate of the market. If the latest trend is down, do not fight the tape and try to "buy at support" like the herd does.

* When trading futures, take a position and put a trailing stoploss, and let the market take you out. Putting a target price is equivalent to anticipating where the market might move to. Doing so may stop you from holding onto the gains in a trending market. That trade could potentially be the biggest win of the year!

* Reassess your position by asking yourself 2 questions:
(a) Is this a retracement (corrective wave) or a reversal (impulse wave)? Assuming you trade with the trend (as most people claim, but few actually do, myself included), if there are signs of a reversal, close the position, and reverse it (more for futures and currency traders)
(b) Would you still enter the trade in the original direction, at the current price? If you would not, why are you still holding onto the original position?

* Losers average losers (Paul Tudor Jones quote). For trading, never average down, only average up (adding to winning positions). A wise old man said: never mix trading with investing!
(This implies that one should keep separate accounts: trading and investing)

* Do something well and keep it simple. Have a daily or weekly simple target (if time permits), and aim to make small consistent gains. Little drops make an ocean; a journey of a thousand miles start with a single step.

* Never trade with an ego or think you will be right or cannot fail. The markets are always right, and we cannot control the markets. Work on controlling your emotions, and executing your plan.

* Always give back to society and place your priority on your loved ones. "Becoming a better trader and becoming a better person seem to go together." - Ed Seykota

SG Stocks - 16/Aug close

1. Capitaland - Took profit at 4.04, on the day it hit above 4.1, and stayed below 4.05.

2. Singtel - Bought at 2.96 today.

3. SMRT - Still holding, bought at 2.05 first week Aug.

US Market holdings - 6/Aug close

Holdings as of 6/Aug close.

1. Long EWJ Jan 2012 $6 Call at $3.45 (Long-term).
EWJ closed at 9.86, nearing 200 MA at 9.9.

2. Long YHOO Oct 2010 $10 Call at $4.10 (Swing, hold till Aug expiration)
BUOB, YHOO closed at 14.34.

3. Long XLF $14.31, Short equivalent XLF Aug 2010 $14 Put (Had closed Short equiv XLF Aug 2010 $15 Call at $0.19 for small loss)
XLF closed 14.78, just above converging 20 & 50 EMA, just below 200 MA at 14.91.

4. GLD Iron Condor Aug 2010: Added more contracts and holding onto 122 C, -121 C, -111 P, 110 P
GLD closed 117.84.

5. SPY Iron Condor Aug 2010: Opened contracts 119 C, -118 C, -108 P, 107 P
SPY closed 112.39.

SG Stocks - 6/Aug close

1. Capitaland (click for chart)
6-Aug close: 4.09

R2: 4.44
R1: 4.2
S1: 4
S2: 3.84
S3: 3.65

Strategy: Sell close to 4.2, wait to buy back at S2 or bounce off S1.

2. SMRT (click for chart)
6-Aug close: 2.05

R2: 2.19
R1: 2.1
S1: 2
S2: 1.88

Strategy: 3 inside bars within 1 black bar. Look to buy if bounce off S1.

3. Noble (click for chart)

R3: 2.1
R2: 1.92
R1: 1.74
S1: 1.6
S2: 1.38 (stronger support if look-back 3yrs). Near-term support 1.48

Strategy: Buy at S1

Disclosure: Holding longs on Capitaland and SMRT

FNSR - possible C&H

FNSR: Possible cup and handle formation on long-term (weekly or monthly chart)

http://slopeofhope.com/2010/07/volume-by-price-bars-look-fnsr-by-leisa.html
http://finviz.com/quote.ashx?t=FNSR&ty=c&ta=0&p=m

GLD, XLF and YHOO

1. GLD Iron Condor Aug 2010 - Scaled in on some positions for 122 C, -121 C, -111 P, 110 P (Credit of $0.30). Will continue to scale in over the next 2 weeks, no stoploss.

2. Long XLF $14.31, Short equivalent XLF Aug strike 15 Call $0.19, no stoploss.

3. Long YHOO Oct strike 10 Call $4.10 (Delta 0.95). After-earnings gap down to 15 month support. Timeframe: 3-4 weeks max (up to Aug expiration), stoploss if weekly close below $13.

Manually closed Euro short at 1.2772 (+108 pips).

Japan ETF and Euro

1. With the Nikkei 225 closing at 9300 today during Asia close, i wanted to go long EWJ, the Japan ETF which traded at $9.3 at US opening. (Position trade)

Instead of going long the underlying at $930 per lot, i have entered Jan 2012 $6 Call at $3.45.

Comparisons:
$6 Call at 3.45 average (Delta: 0.8935) (Bid-ask: 3.3, 3.55)
$5 Call at 4.4 average (Delta: 0.9421) (Bid-ask: 4.15, 4.6)

Cutloss: If Nikkei 225 closes below 9000 (EWJ equiv of 9) for 2 consecutive days.
Take profit: Will evaluate if Nikkei 225 rebounds nears 10,000.

2. EURUSD - possible key reversal off 1.3. (Max 1-2 days, which can be a long time in FX!)
The Euro is forming a BEOB (Bearish outside bar) on a daily basis. Entered Short at 1.288, Stoploss 1.304, Trailing step 80pips, TP 320 pips. (Note: This is a set-and-forget position)

APWR - closed, V call - opened

APWR:
Today i decided to close out both positions (long stock and short call), for a small gain. The selldown in this low volume stock doesn't look too good, as it is diverging from the market movement.

Have also closed out long position i added on Friday to APWR, which is smaller than my original holding.

V call:
Have entered Sept 80 call for V at $1.10, which has earnings on 28 July.
Reason: Near $70 support (V currently trades at 71.25). Will look to close the position after earnings.

LVS - closed

Closed out LVS position.

Obviously if i held the stock position only, profit would be larger. On the other hand, closing the position early means capturing only a fraction of the extrinsic premium.

Actn Qty Underlying Description Price Crrncy Exch. Time Order Ref. Comm
SLD 1 LVS AUG10 21 Call Option 3.15 USD CBOE JUL 12 22:47:03 OptTrader
BOT 100 LVS Stock 23.08 USD NYSE JUL 12 22:47:30 OptTrader 1.00
BOT 1 LVS AUG10 21 Call Option 3.95 USD CBOE 02:12:36 1.01
SLD 100 LVS Stock 24.18 USD NYSE 02:13:02 1.00

Long stock and short ITM call

APWR: Weekly close above 7.75 and it has held above 7.75 so far. Looking to possibly add max 2/3 to 1 portion of current holdings. Last Friday i attended an interesting dinner at a local association formed by the local stock exchange and former floor traders, and thereafter had a coffee with a veteran of the trading floor, who gave me an idea on options.

Instead of a covered call (long stock + short OTM call), or married put (long stock + long OTM put), why not long stock + short ITM call for front month (synthetically equivalent to married put)? So i sold the equivalent of Aug 2010 strike 7 call option for $1.10, and collected a small portion of time premium $0.20. Did the same for LVS, opening both stock and option positions simultaneously.

Current positions:
APWR: Long 7.27, short Aug 2010 strike 7 call for $1.10. Extrinsic premium $0.20
LVS: Long 23.08, short Aug 2010 strike 21 call for $3.15. Extrinsic premium $1.07

No entries on current watchlist, will stay out for rest of week and prepare plan for next week after 16 Jul options expiration.

Watchlist:
RIMM: Breakout last Fri above $51-52 on higher than average volume. May test $58 to cover the gap, which coincides with 50 EMA.
BP: Tested the 20 EMA before continuing its up move. No retracement, so did not enter long position.
C: Closed above $4 last week, and continued up. Volumes are not higher than average (14 EMA)

Back - APWR and a few...

After a short break from the markets (most of May and June), am slowly getting back into trading and doing small positions.

1. APWR- Long at $7.22 on 30/Jun, watched it bounce off $6.8 support (did not have a plan to add), and sold it on the 5/July opening pop at $7.7 (felt the upmove was a bit overdone).

Watched it close the previous gap, and queued to long again at $7.24 & $7.31 (currently holding). Will consider adding if it stays above $7.75.

2. RIMM - Watching. Looks like catching a falling knife, will consider going long if it clears and stays above $51-52 on high volume. Keeping a close watch on 45 mth low of $35, should form strong support. Will consider entering partial position if it comes close to $40, followed by more if it bouces off $35.

3. BP - Watching. Probably a bit overplayed, would like to see it retrace to $30-31 and reverse up, forming an inverse H&S.

3. C - Watching. Need a clean break of $4 on high volume.

On the bigger picture, everyone seems to think the S&P500 support of 1040 is crucial, and we have bounced back above it this week so far. As long as 1040-1050 holds, will continue to hold long positions for equities.

Review - 5/5 to 8/5

A short review for last week.

1. Intraday trade on LVS, 6/5
Enter LVS 10.77, exit 10.41. - 3.3%.

Positive: Mental stop was slightly below 10.5, so the loss was taken quite quickly.
To improve: Tried to pick a bottom, but probably did it a bit too early. Stop could have been tighter if bottom fishing.


2. Intraday trade on BAC MAY 14 Put (BYOQN), 7/5
On this day, BAC opened with a huge gap up at $15 (prev day close $12.25), and the trade was intended to fade the gap. Trade was taken when a lower high was formed on BAC after watching the first 45 mins. Trade closed when BAC came back above $14.

Entry 0.84, exit 1.05. + 25%.

Positive: Controlled trade, good entry (lower high on a huge gap up day), good exit.
To improve: To recognize it was a down-trending day for the indices and financials. Pullback on downtrend day would mean an opportunity for another short entry.


3. Straddle on FAZ, 7/5
Entered FAZ MAY 6 Call (FAYEF) at 0.6 and FAZ MAY 6 Put (FAYQF) at 0.9, when underlying FAZ was around 5.7-5.8. This was on the day of the bank stress test results, announced after mkt close at 5pm EST. The option chain will profit only if FAZ goes above 7.25 or below 4.75, and the intent was to close the position on Fri 8/5.

Unfortunately, i did not stick to the strategy, and instead sold off the put leg when it seemed the market was turning, and closed the other at the end of the day, when the FAZ indeed hit the profit zone, hitting a low of 4.43 at 3.50pm EST.

Exited FAYQF at 1.1, exited FAYEF at 0.2. + 22% & - 66%.

Lesson: Plan the trade, and trade the plan! I followed the first half, but not the second half. Thought to self: Remember, sticking to a written strategy is far more important than the trading outcome.

Links

A few good reads:

1. 10x Equals X - The Importance of Hard Work.

These new traders believe that if their work output is X then their reward must be X. If only that were the case. When you begin as a trader, your work output must be 10x to make x.

2. “V” Right on the Open - Where I Want to Be - Excellent example of market opening trade.

3. Bullish on VIX

4. Full Q&A With Investors and Traders on Twitter - stockguy22

5. Volume Weighted Moving Average Price (VWAP)

Review - 27/4 to 4/5

An eventful week, closed all positions and entered/exited Visa calls, and a brief stock trade in MasterCard.


Old positions (all closed):

1. CCJ JAN 2010 30 Call (LTAAF) - entered 0.45 on 14/4 when underlying CCJ was 18.19. Exited remainder 2/3 position at 1.925 average on 30/4, near the end of a strong surge (when CCJ was 24.52 & 24.56). + 327.8%

Talk about the power of options: the stock gained 34.9%, while the options gained 327.8%.

2. SPY MAY 90 Put (SWGQL) - entered 4.65 on 24/4 (when SPY was 86.81). Was waiting for a break in support of the SPY, however breakdown did not happen. Exited 5.3 on 27/4 (when SPY was 85.75). + 13.9%

3. HL SEP 2.5 Call (HLIZ) - entry was 0.45, exited 0.6 on 28/4 (when HL was 2.59), at the end of a strong day surge. + 33%

4. SLV JUL 16 Call (SLVGP) - entry was 0.65, cutloss at 0.25 on 27/4 (when SLV was 12.85). - 61%


New positions (all closed):
1. V JUN 70 Call (VFN) - was quietly confident on Visa's earnings results on 29/4 after mkt close, but waited for the right moment.

On 24/4, Visa climbed to a high of 60.75, and the calls hit about 0.85.

Waited for a dip, and on 27/4 morning, entered the calls at 0.70 (when V was 59.13). Since the calls doubled and hit 1.4 on 29/4 morning, i decided to sell off two-thirds of the calls at 1.45 and 1.35. + 101%

The stock went on to reach a high of 63.74 on 29/4 late afternoon, before the earnings after market close, which were slightly favourable. But on the next day 30/4, the market shot up, and Visa went on to hit a high of $68, taking the calls to bid price high of 2.9. Exited remainder at 2.75. + 292.8%

Now, most people might say, they could have kept the calls since they were already 100% up. But like the recent Goldman case of buy-on-rumour and sell-on-news whereby the calls collapsed due to time decay and stock sell off on results, there was a possibility of losing a large amount of the gains or more, hence i decided to close two-thirds of the position before the results.

That the calls went on to double again after i sold most of the position, giving almost 300% gains is immaterial. The key is to recognize when not to be too greedy, and take what the market gives you. Before the trade, i would have been happy with a 100% gain from the calls, hence the decision to lock in most of the gains was a right one.

2. MasterCard (MA)
This was another earnings play i was eagerly anticipating, results were due on 1/5 before mkt open. I was looking to enter on 29/4, but partly due to the Visa's earnings, there was a hesitancy to be place too many eggs into one basket, since both are electronic payment companies. The option i was looking at: the MA JUN 220 CALL (MALFD).

Here's what happened. On 29/4, the stock hit a low of 168.17, before really taking off to the races, hitting 177.83 near the close. During the day, the calls went from 1.35 to 1.7. On the next day, the stock gapped up above 180, and went on to hit 188.77 before closing below 184. The calls opened at 2.46, and hit a high of 3.4.

Hence the calls had more than doubled before earnings results.

However on 1/5, earnings results were out before mkt open, and due to the company's warning about continued weakness in revenues, the stock gapped down and briefly hit below 164. What happened to the calls? They collapsed with the drop in volatility, and ranged between 0.55 to 0.8 that day, since there was little chance of the stock hitting the strike price.

Instead, i took the opportunity to take an entry on the underlying stock at 170 at the end of the trading day, and exited it on the next trading day morning.

MA stock - entered 169.96 on 1/5, exited 177.08 on 4/5. + 4.2%

Lessons from Brett Steenbarger, Part 1

Lessons from Brett Steenbarger, author of several psychology trading books, including the recent release - The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist.

This blog post will focus on: How to avoid overtrading, and why you should not overtrade.

1. How Do I Avoid Overtrading?

Essentially, overtrading consists of: "trading size that is too large for one's portfolio (i.e., taking too much risk per trade) and trading too often (i.e., when an objective edge for the trade is not present)".

The solution is to formulate one's trading rules explicitly, and to stick to it always. As Ed Ponsi mentioned in a seminar i attended last November:

Always stay with your strategy. Never change your strategy even if the outcome is positive from a case of not following your strategy.

Judge the success of your trades based on whether you followed the strategy, not based on the outcome.

2. In a related post - Position Sizing and Risk Management in Trading, Brett shows why position sizing is so important.

The example used shows a peak-to-trough drawdown of 12% for a portfolio whereby returns per trade is only 1%, on the assumption the trader has entered a period of flat performance (average zero return per trade).

Brett goes on to say:

When we trade size that is too large for our account size, we subject ourselves to drastic swings in P/L, and that subjects us to drastic swings in mood. In turn, we then make trading mistakes that bring a negative expectancy to each trade, and the size eventually blows us up.

3. Finally, a few nuggets of wisdom.

From a medical doctor, from Risk Management and the Biology of Trading Psychology.

... risk management is perhaps the preeminent tool of trading psychology. When we trade with excessive leverage, exposing our accounts to potential drastic drawdowns, we create the kind of stress-based learning that overwhelms the executive abilities of the prefrontal cortex.

There are many guides for risk management, but perhaps this psychological definition is simplest of all. You should always ensure that any loss you are likely to take in a position will not be large enough to generate an emergency response of mind and body. The size of your positions relative to the size of your portfolio will serve as a kind of magnifying glass for the stress responses of mind and body.

Risk management is a biological--as well as psychological--trading imperative.

From Brett:
(a) Take What the Market Gives You: When your idea pays you out quickly, take some profits; (the winners that turn to losers are especially painful)
(b) Focus on profitability for the week: Don't get caught up in individual trades; focus on profitability over a series of trades and days.