Some Lessons Learned

Watch for the bid ask spread. SNP had a .80 spread which put me a little more behind than expected. In the end, the stock broke through my stop for double the anticipated possible loss.

Need to develop a strategy for big announcement days. Need to tighten stops or get out of the big winning trades (with the profit intact) before big announcements. If I had of gotten out yesterday of my biggest 3 gainers yesterday, my net loss today would have been about 3%, for a net gain of 8-9% from the days before on my portfolio.

I can always have multiple contingent orders ready when a possible major price movement in either direction is expected after a big announcement. Today was one of those days.

Watching and following the broad market indexes is a key factor to being successful trader. I have found that following the broad market indexes, I donÂ’t need to try to hard to look for stocks for potential plays.

Given the events of the day, I need to become better at my bull strategies. I am at a loss at what to play tomorrow. I need to be able to play both ways at a touch of a dime.

I need to practice more. I am becoming much better at picking the stocks, but need to work on my under pressure trades and exits. Looking back, I should have exited those trades that were already nearing my stop before the announcement.

I have worked hard to get this far. I am pleased that I have been able to develop and implement my first real trading strategy and rules. It is definitely a boost to see it work...Butt I need to test it more to refine and have more confidence in it. Not taking into consideration it being FED day today, I think that there is a lot of potential in what is being developed.


Keep on plugging away === YOUR GOAL IS ONE LESS DAY AWAY!!!

;-)

My Current Option Trading Strategy and Rules for Individual Stocks

As noted on my last blog post, I indicated that I would share with you my current option trading strategy and rules for individual stocks. I must emphasize that I am only an amateur trader. This trading strategy and rules for individual stocks is based on my on my own trading style and goals at this moment in my life. These will change in the future. I do not recommend that you use or implement this strategy or trading rules. My only recommendation is that before implementing any strategy, you must conduct your own careful research and obtain advice from experienced financial and trading processionals. I am not a financial or trading professional. The information in this blog is worth as much as you paid for it… ABSOLUTELY NOTHING!

Now for the fun stuff, my current option trading strategy and rules for individual stocks. Since the market appears to be in a declining trend, I have been concentrating on put options, so will outline my strategy and rules for those. Note that my strategy and rules for calls are roughly the opposite. In general, I only want to be in an option trade for up to 3 weeks.

Put Options

We can assume that I have a bearish outlook on the market at the time of the analysis :-)

1. The basic parameters for my stock screen are those that show a declining trend, lower lows and lower highs (supported by a declining industry group trend), trading under its 30 day moving Average line (DMA). Preferably I look for stocks that are coming back up to the 30DMA to make a lower high on peaking MACD and Stochastic and bounces down or tips over at the 30DMA on increasing volume. I also look for declining ROC and negative divergence, partially when looking at stocks showing market top formations.
   
   
2. Unless the chart provides evidence to the contrary, I establish the lower high as my near-term resistance level and the lower low as my support level.
   
   
3. For stocks that a making new lows, I identify my profit target by measuring the price move each time the stock price bounces off the 30DMA and returns back and take the average. I use the average number of days for each price move to estimation of how long I expect the next price move to take and the most appropriate expiration month to use. If I cannot use this method to identify my price target, I look at the char for evidence of previous support.
   
   
4. My entry point is based on the stock closing below the 20DMA. My stop is set just above resistance, and 1st target set at the support level. If the stock breaks down at the support level, I measure the distance between previous support levels to establish a 2nd price target.
   
   
5. My exit point is when my profit target is reached or if the stock is stopped out. If the stock is showing signs of continual weakness, breaks-down further and surpasses my first profit target, I will establish the 2nd target and lower my stop to the new resistance level to lock in profits. In extreme cases when there is a strong price movement against my favor, I may exit the trade prematurely. I have no desire to be in trades that are going to keep me up at night.
   
   

Thanks - Dave

Leverage Strategies for Meeting Personal Goals

For me to be able to fulfill my 18 month goal I need to be able to draw in excess of 6-8K /month net from the market. At present, I have a trading account with approx. 10K in funds. Obviously I need to increase my active trading account to well over 100+K so that I do not need to enter trades that are considered overly aggressive or appear to be too high risk. I want to be in a position in which I only need to make around 5% per month to comfortably meet my present goal. I have found that the use of both stock and option strategies will facilitate this.

Leverage Strategies – Calls & Puts

Over the last few weeks I have been learning option trading strategies. Below is an overview of the call and put strategy that I will use.

1. Assess the current market to assess whether a bullish (call) or bearish (Put) strategy should be used. I need to consider what the intermediate and short-term market trends are, market momentum and volidility. For the intermediate term, consider what trend market shows for the last 3-6 months. For the short term consider what the trend has been for the last 5 days to few weeks. There are a number of indicators for momentum that can be used and volatility can be determined by looking at volatility indexes (VIX, VXO, VXN).
2. Pick some stocks to trade. There are a number of different ways of doing this. My preference is to use Investools or Prophet.net (both are subscriber based, but I think they are worth it) to search for stocks that meet my trade criteria. In addition I research stocks recommended by others I consider to be awesome traders. It must be notes that it is important to develop your own trading style and establish your own trading rules. The way I like to trade and the risks I am willing to take will more than likely be different to how you will trade. As I develop my own trading style and trading systems I will share them with you in future postings.
3. Check the chart for the stock (don’t forget the industry as well) and run your analysis based on trading style and system.
4. Based on the analysis and the current stock price, I will choose an appropriate expiration date and strike price. Since I am fairly new to the game, and need to get experience under my belt, I will generally be picking at-the-money or in-the-money contracts with an expiration date 2 or months out. I will try and purchase at least 2 contracts at a time so that I have the option to sell one if when the trade breaks even.
5. Place the order and monitor on a daily basis.

On my next blog posting I will outline my current option trading strategy and rules for individual stocks

Thanks - Dave

It’s Your Money, You Owe It to Yourself to Invest it Wisely

Following on from yesterday’s post I thought that it may be good to articulate the steps I will need to take once stocks have been selected as prospective trades. This needs to be done for EACH AND EVERY STOCK.

1. Identify the trend
2. Identify the support & resistance
3. Identify the profit target
4. Identify the stop loss

As for today’s Market, it was definitely a day for the bulls. A number of the broad indexes broke through their downward trend lines and short term resistance levels. From reading a few of the commentaries bouncing around, it appears that most cannot give a definitive indication of which way the market will go. The next few days will be interesting. The market will soon tell us what to do.

Forcasting Market Trends

The market is very interesting at the moment. I could try and give you a recap of my interpretation of what’s been going on, but there is no point. I would rather give you a link to someone who, in my opinion, really knows what is going on. There is not too much I can say about Tim Knights blog. It stands on its own. I have been following his blog for the last 6mo now and have to say he is pretty spot on.

Skeptical? As you are aware (well I hope you are) the market started to take its current dive around 5/30, take the time to read is market analysis from the beginning of May 06. You will probably find yourself continuing all the way through June 06 - present and every day from tomorrow on.

As a 'Newbie", regularly reading Tim Knight’s blog has reaffirmed for me the importance of understanding the broader market as a whole, therefore I have come up with the following trading rule that I will use. It is nothing new. Those of you with experience probably live by it already.

Personal Rule for Future Trading Decision’s

1. Identify and analyze the trend of the broader market (like the Dow NASDAQ, S&P500 etc)
2. Focus on market segments that seem to align with the broader market trend
3. Find stocks that align to the above

Thanks - David

This is Just the Beginning!

Well, what do you say on your first posting... I am just am ordinary guy with extraordinary hope and dreams about my future and the ones I love.

Let’s start with the 'Extraordinary Dream' bit.

Below is an extract from an email I sent on March 17, 2006...
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If you have the time to read below I would like to tell you my story.

I currently work for a successful general contracting firm. I conduct schedule analysis (predominately earned value, time impact, fee erosion) to determine the probability of a financially successful outcome for major projects (300M+) that run over multi year durations. In essence, it is very similar to Technical Analysis but with its focus being a construction outcome. I am one of these people who love what they do, but have become frustrated and disillusioned because many of my analytical findings (partially when it indicates a possible negative outcome) and recommendations are usually discounted or ignored until it is too late to do something about it. For some time I had been considering a career change. I needed an exit strategy, but did not know what.

[two paragraphs of Blah!, Blah!, Blah!, Blah! (Sorry stuff really)]

I believe that I have found an opportunity to leave corporate life behind and do what I enjoy, i.e. [technical] analysis, a willing person who will be able to act on the findings and recommendations, i.e. me, ultimately for the benefit of those I care for most, i.e. My Wife and future Child (not forgetting myself and my sanity!) . I hope to also teach others some day.

[GOAL #1] I have set myself a goal to leave my corporate career within the next 18 months to become a part time schedule analysis consultant, and stay at home dad/stock trader.
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There you have it. I have set the stage, the extraordinary dream. This blog will be my story of how this 'extraordinary dream' pans out. I hope to share with you what I learn along the way develop some friends as well.

Lets see how it goes - Dave