Money Grab

I was reading my usual news sites and this popped up on the pages.

http://www.news.com.au/business/story/0,23636,22424725-462,00.html

"

HUNDREDS of worried customers of British bank Northern Rock queued for a second day yesterday to withdraw savings, ignoring assurances that the lender will not go bust due to the global credit squeeze.

Panicking savers of Britain's fifth-biggest mortgage lender had begun to withdraw their money en masse on Friday, taking out a reported £1billion ($2.3bn) over counters or online.

"

Now this is despite the bank assuring its customers that they will not go broke and the Bank of England offering liquidity.

If this starts spreading then we have a big issue that can seriously destabilize the banking industry as well as the wider economy.

This is worrying

U.S. payrolls contract by 4,000 in August

Major surprise; economists had been expecting growth of 115,000. It looks like the sub-prime worry are spilling over to the other area of the economy as well.

So does this mean that the US Feds will cut interest rate later this month ? I think so.

Reading Price Action.

The market has really taken a run for the bulls and those of you who did a bit of shopping in the last week or so would be smiling your way to the bank.

I have been developing two systems. One a daily short term system and the other a longer weekly system.

But while all this is happening I am wondering can I just trade by looking at price action ? No use of indicators etc. I'll need help. So lets start some work on it.

Nice Day

Today was a nice day for pretty much all of the market. If it continues this way we are on the track to the best week we had in a while and as I type this the the US Futures are up, so we could have another good day, but I'll let the market say that.

I have started work on my system and I am trying various permutation and combinations to get a decent positive return with low drawdown.

Looks Good, fingers crossed.

Today was a nice day in between all the the doom and gloom. However, don't become complacent and let your guard down. Its not over till its over, and this correction is defnitely not over. Today's rise was too fast and too good and if any more bad news pops out of the subprime market we definitely gonna get hit as well.

Fixed Fractional position sizing

Most of us who have dipped their foot into the market are generally concerned about making money. The first rule I see of making money is to not loose what I already have. While its next to impossible not to loose a trade or two its imperative that I do not loose all or most of my trading capital.

I was lucky enough to stumble across the above term and although it sounds quite sophisticated, its quite a simple concept to implement.

Lets say, for an example, you have a total capital base of $100,000; then you divide the lot into 10 parcels of $10,000 each. You would only invest one parcel on one stock. So you are basically spreading the risk across ten stocks.

Now lets say you wish to trade a $1 stock with the first parcel.
.
You don't wish to risk more than 5% of your capital on the trade.
So maximum risk is 10,000*5/100 = $500.

You plan to buy stock and think that a 5c stop would be best.
So $500/.05c = 10000 so you CAN buy 10000 with a 5c stop.

Lets say you think its going to run so you only have a 2c stop.
so $500/.02c = 25000 so you could maintain the same $500 risk and invest in $25000 of shares.

OK lets say you wish to use a wider stop can you still buy 10000 shares?
So $500/.20 = 2500 obviously no you can't. You must buy 2500 ONLY to maintain the same 5% risk with a 20c stop.

So same maths applies to any position you take.

$15300 capital, 5% risk how many shares can I buy of a stock trading at $1.92c with an 18c stop?

$ at risk = 15300 x .05% = $765.
765/.18c = 4250 shares 4250 x $1.92 = $8160 so you can ONLY buy 4250 shares at an 18 cent risk to maintain the same 5% risk to capital.

I'll go further and talk about Reward to Risk or the R/R ratio.
If you buy and then sell the $1.92 stock for a 54 cent profit you have returned on that trade a 3:1 R/R ratio.
This is calculated by 54c (the profit)/18c (The risk) = 3 so 3 times the risk has been returned.
So if you win 2 out of 3 trades with this sort of R/R ratio then your doing well.

I have a spreadsheet that does the above calculations and anyone of you need it I am happy to post it here. Other wise there are couple of free applications on the net that can do the calculation for you. Two of them are:
TradeSize Pro
This can be found here.

The other one is called MM Calculator and it can be found here.

Lemme know if you know of any other applications that do a similar job. Happy trading.

Feds cut rate

Just saw the news that Fed cuts discount rate to 5.75% to ease credit crunch.

The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from regional Federal Reserve lending facilities. It differs from the key federal funds rate, which is the rate at which private institutions lend to other depository institutions overnight.

The result, as I type this, DOW INDUSTRIALS up more than 300 points in opening minutes; NASDAQ up 2.5%.

So we clear of the woods ? Not yet. This will put breaks on further market slide provided there are no more ugly news from sub-prime market coming across.

So now we can look at a few findamentally strong companies. These stocks are best poised for a sustained rebound on the ASX.

BHP
RIO
WES
CBA
CTX
LLC
COH
CSL
OXR
WOR
ANN
ANZ
UGL
NCM

Correction or a Bear Market ?

So is this just a correction in a bull market or the beginning of a Bear Market ? Time to get that crystal ball out. lol. To be honest no one know. Poll 100 people and its likely 50 will be right as it will be either a yes or a no.

One thing is for sure, any stock that is speculative will get its price brought to ground reality. So now would be a good time to get that fundamental checklist out and start looking for stocks that are holing well and are fundamentally strong. QAN, LEI, CBA come to mind.

It keeps coming

There was more pain today although I have been on the sidetracks to protect my capital till things settle down there has been a few good news stocks like JBH CRG etc. So we have been getting these mixed signals but now is a time when extreme caution is to be exercised.

Tonight the US market is at a brink, if it breaks down more the damage will be more difficult to come out of.

More Pain

Investors stayed away from the market today probably cos they have become wiser like me from experience. Everytime they have jumped in, the market has thrown a nice surprise ball at them. I have been on the sidelines for a while now.

It looks like DOW is be going to take a bit of hammering tonight. Stand aside, train wreck coming.

Tuesday

The injection of funds from central banks in US and Europe seems to have stabilised the market a bit but I am hazarding a guess here that its only temporary and there will be more skeletons falling out for the simple fact the the market still does not know the full extent of the sub-prime issue, does any one ?

Monday

Sorry for not being able to post for the last couple of the days, I had been travelling, but it was some week. The retest came and it came with quite a bit of strength. I guess as skeletons keep falling out of sub-prime market in US we would keep seeing this wild moves. If you are a seasoned trader you can take advantage of the moves and can make a packet.

One thing I have been doing is keeping an eye for stocks that defy the pull of the bears too much and pick a small quantity of them. This way I will have my foot in the door if it takes off and it fails then stop loss would save me taking big hit.

My scan picked up the following stocks.

MGW
It seems to have broken its downward spiral and has made a breakout. There is good support at $2 and at $1.92. It has hit the resistance at $2.26 and if it breaks out of this I might take a small position in it. The next resistance would be at $2.27. There is a spike in buying which is good but I would need more of these.





AGK
Its been forming an ascending wedge for quite some time and for the last three days the volume has been positive. If it breaks out of the resistance line at $16.40 then it would be a good buy.



My scan also picked up BOL, PPX, BBG but they are all in the same group as MGW, there is strength but they all need confirmation.

Stay safe.

Wednesday

We had a nice day today. Most of the stocks were up but I am still expecting a slight dip before the market resumes it normal trend.

My system identified ARG this night and overall it looks ok. Its poised to breakout with positive above average volume coming in for the last three days. If the markets hold this could be a runner.

The Market.

The Dow industrials recorded its best day since June 2003 but surprisingly the local market did not follow it. I guess investors here are cautious as in the past the wild ups and downs have got them wary.

The decision on interest rates and tonight's market depends on the decision as it will effect the outcome of the US market and will have flow on effects on the ASX.

Hunting.

I am now cautiously bargain hunting. My shopping list consists of

FPH
OXR
BHP
BSL
CEU
CUE

Now these stocks, to me, have been oversold or resisted the selling pressure quite well and hence tomorrow I will see if I can pick them up cheap. Mind you I will take small positions in them if at all and will keep a finger on the sell button as well. This is a very volatile market and caution is the key.

New week.

That was some week. Friday, the US markets dropped quite a bit and I am expecting a fairly volatile week as investors are gonna be on edge due to the sub-prime debacle.

During these times I am keeping a close eye to see if I can spot any good bargains but definitely gonna be on the cautious side. Now a lot of companies are gonna be reporting earnings in this week. If their earnings are positive then I expect the market to get on an even keel. Either way expect a volatile week.

Waiting it out.

There was wide fluctations in the S&P ASX 200 and this kinda tell me we are still not in the clear and it sure will be a bumpy ride.

I am still on the sidelines.

The day.

Wow I was right about the X Factor. What a day it was, pretty much every market took a hammering and the Aussie market dropped about as much as it dropped on 9/11.

if you look at the big picture, the economy is doing great, unemployment is at its lowest, exports are up. So over all the pillions holding up the economy are doing OK, no cracks there. Once the jitters about the US sub-Prime mortgage settle down, I am expecting the market to rebound.

Keep an eye for stocks that are defying or resisting the downtrend. These stock will definitely take off once the market returns to its normal uptrend.

The X Factor.

Now that it looks like we are out of the woods (markets have been positive today) I did see cautious buying. I am gonna wait till tomorrow as the Wall Steet is the X factor in the equation. If all goes well then this correction will become history.

My scan did pick up UGL but as I said above, hold fire :)

The day after, or the day before ?

Friday night the US stock market saw a major correction. So on Monday I am not expecting a major rise in the XAO or probably any Asian market except China, which continues it run.

I still believe this is a correction and not a crash, yet. This should be a great time for bargain hunters. The question now arises, should I look for some good bargains like BHP, CTX and OXR ? The risk is that there might be further drop in their stock price. I guess the prudent thing to do at this stage would be to poised and be ready at the sidelines and when the market stabilises, then I can pounce on any good deal that presents itself.

The Bloodbath

Today there was red everywhere. But hopefully there is good news out today.

U.S. second-quarter GDP rose 3.4%, so all is not lost. Still extreme caution is required when going Long on stocks. Hopefully you will know what you are doing. If you don't,then stay out of the market till things settle down.

Friday

Most stocks were down yesterday and by the looks of it the US market has opened sharply lower and the ASX might do the same.

So what do we do on days like these ? Watch for stocks that resist the downtrend and even put on a few cents to their price. LLC, CTX come to mind.

So lets just watch and wait it out. Remember Good luck is when preparation meets opportunity.

the day

The overnight drop on US stock prices and the higher CPI figures didn't help either. Most of the stocks fell today and although my scan picked up a few like ORG, CTX, LLC, I would still like to see some good news both here and overseas to look at dipping my feet into the market. In a market like this, standing aside is a skill by itself.

Emotional Control

Recently I have been selling off my runners after a significant run. Now there is nothing wrong in taking profits when the trend has finished and the stock takes a down turn, but I have been selling my stocks when they had just done a higher low. After realising how much money I have been leaving on the table due to this issue I decided to fix it. The first thing I did was to document next time I make the mistake. The opportunity came soon.

I had taken a position in CRG and it had done a nice breakout. On 23rd it opened at 19.23 and closed at 19.18, although intraday it dropped to 18.59. Now I did the same thing I had done before. Sold it. Today it resumed its run and closed at 19.94.

Guilt as charged.

But this time I had records to see why I did what I did. I had taken a screenshot of the chart and typed my comments in it.
Here is the answer:
I was looking at the dollars I had made in unrealised profit. At the back of my mind I wanted to lock in my profits and just grab my money and run to the bank in an armoured vehicle.

The fix.
well this should hopefully fix it. I have decided not to login my brokers trading platform once I have executed the trade. I will watch my trades using Quotetracker. And in quote tracker I will not put the amount of stock I have bought or at what price. This way I will only see that days changes forcing me to concentrate on the stock's performance on that day. Hopefully I won't see the amount I have in unrealised profit and get emotional. Eventually my brain will get trained at looking the charts and not at the profit and act accordingly.

Tuesday

My scan picked up LLC and JBM.

LLC
Although the price is below the 100 day MA it has shown good strength and today the buyers and sellers reached an equilibrium, well almost. Although the market was down today and there was heavy selling, the stock price held it up. Definitely sign of strength, but next couple of days will tell if it had really broken out.




JBM
Looks like JBM has broken its downtrend and buyers have flocked to pick it up. The volume looks good. The last two days big white candles look great.

Monday

On my scan are EXT and IAG.

Ext is not a buy right now, but it has been trying to breakout for a while and it had a long white candle on Friday with some positive volume. Now the next couple of days will define how it manages the breakout, if at all.

IAG
this stock has really taken off and I am hoping it has done a good run based on the positive volume.


The US market had tough day on Friday with bears taking control and this is likely to reflect on the ASX on Monday. The S&P 500 dropped to 1,534.10, a drop of -18.98. Although it was mostly related to the Subprime mess, it still affected the overall market.

Stopped out.

My yesterday's pick did quite well.

SMX was up 3.015% today.
PXS was up 2.899% and
CBA was up 1.240%.

Today I have been watching TRS and DJS.

TRS has taken off but DJS has been consolidating after a decent run. Lets see how it goes tomorrow.

BTW I got stopped out of MRE as it had broken a support line. You can't win all can ya ?


Ok, here is AMP. Its just touched its resistance line today and has been trying to breach it for the last couple of days. The volume has been steadily dropping and if it jumps across the resistance line, then that line should become the support line and it might just do a good run from there. Lets watch this one carefully.

Scan

My scan today brought up SMX, CBA, and PXS.

I do not have the time today to post their charts. But they look good. If I have some free capital, I will definitely pick them.

Testing the rules.

When I had started trading I had set myself some rules:

1. Never chase a stock that has taken off, wait for it to consolidate or let go.
2. Never buy at whim, gut feeling, angel on my shoulder feeling.
3. Never buy at the opening of the market, wait for 1/2 hour to 1 hour.
4. Never buy againt the trend.
5. Check all the indicators. Volume and RSI are must and check market news.

Today ORI broke out in the early morning and I really wanted to jump in as everything looked good, except it was 10:15 and the stock price was 30.15 So I decided to stick to my rules and wait it out. My patience really got tested and I waited till 10:45 before making an entry with 20% of my allocated fund. by this time it had really started its run. If I had made an earlier entry I would have got it cheaper but you can't win all the time, can you ?

ORI finished the day at 31.70 with nice volume.

Quick fire.

ORI

I saw Orica break out from its ascending triangle this morning and took a small position in it. By afternoon the breakout had definitely taken a foothold and kept rising.

Picks

TTS
It had come on my scan about two days ago and its been showing great strength since then with nice volume supporting it. Its approaching its first resistance level at 5.16 and the next one at 5.28. After that its blue skies.





CDU
It has started dropping and I am hoping it bounces off the support line, it will be good time to jump in at that time. People haven't been selling it off in droves, so that speaks volumes :)





WIL
It been consolidating for a while and has formed an ascending triangle. This one is a definite watch. the last bar is a nice signal that those who hold it are not planning to get rid of it in a hurry.





WHG
It has been forming a descending triangle and is on my watch list. The volume has been dropping as well and I hope it will eventually either break out or drop like a rock. From its pattern it looks like its forming a pennant.




COU
this is looking great. Just hit blue skies. Now why didn't I buy it in Jan.

OST is UP.

OST up 3.49% as I type this.
HER up 0.34%
AGF down 0.39%

One thing I need to start looking is the volume on my scans as well. Compared to OST AGF and HER are no where close.

I have not taken any position in either of them as I am fully invested. But will keep looking for the good ones and posting them here.

The Scan

Next on my list are:

HER
It has found a good support line and the volume has supported the move. Now on my watch list to see if it will break that resistance line.



AGF
It had broken the previous resistance line at 1.26 and now approaching the bigger resistance line of 1.28. The volume is up, so this is definitely on my watch list.



OST
Pretty much the same story as AGF except its blue sky region and no resistance above, provided volume supports it. Definitely a close watch as it might drop back into its channel.

PMP

(click on the image to enlarge it)

PMP came up on my scan this arvo and it looks good. There was a massive injection of volume and its above its second support line. My concern is that its below its 200 day MA and its still inside its downward channel. Further past volume injection could not get it to break out.

The Plan

When I first looked at the stock market I decided I would need some good books to go through and a lot of people I talk to recommended me a couple of books. So I picked up the following books and have read them cover to cover:

Van Tharpe - Trade Your Way To Financial Freedom
Nick Radge – Adaptive Analysis for Australian Market
Mark Douglas - The Disciplined Trader
Mark Douglas – Trading in the Zone
Pristine - Swing Trading With Oliver Velez
Alexander elder – Trading for a living

I subscribe to a few blogs, but the first blog I read was Trade4cash by Brian, and I must say he has years of experience and knowledge of the market, but above all he genuinely tries to help you.

Now I have done a spreadsheet in excel which gives me fixed fraction position sizing for my trade. I have divided my trading capital into 6 equal lots so I can only put 1 lot on one stock. My stop loss is 5 %. Now with each lot I make an initial entry with 20% of the amount of the lot. If the position moves in my favor, I pyramid in with 60% of the lot and if the stock really is running then I top it off with another 20%.

I also try to find a good Return to Risk ratio (R/R) of atleast 2:1 to make an entry.

I had been paper trading for three months before I finally decided to jump in and what a difference it is. The emotions, the rush, fear, greed, all at the same time is to impossible to feel if you are paper trading.

In the next few posts I will discuss some of stocks I have taken a position in and the rationale behind them.

The Beginning.

And so it begins. My journey as a trader. Learning as I go and unlearning what dosent not suite my style.

So you ask why this blog ?

Well to document my journey and share and exchange what I have learned so far with all the experienced traders out there.

I'll be posting a lot more in the coming days and updating where I stand.