The Saga Continues- with added Trickery

Okay, i’m still in this play (still haven’t learned my lesson about frequency LOL). Mostly downward movement today from my entry point. But the trickery!! Imagine a HUGE run Wednesday when i got in, then about a 50% pullback, forming a huge white candle with a long upper shadow. Today we end up with a short black candle next to the upper third of Wednesday’s candle body and what could be the start of a deadly 3-inside-down pattern. Or, considering the huge length of Wednesday’s upper shadow, it could be a continuation pattern. Confirmation will be needed.

The trickery here is that Wednesday was strong buying pressure, but then in spite of this the mm’s started out fresh this morning with a walkdown and a couple of hard dips to hunt stoplosses. The stoploss hunting was effective, triggering what looked to me like a dozen automated stops and these would then be followed by 4 or 5 manual exits. I base this estimate on times elapsed. What i didn’t see was the exit of a lot of the elephants who climbed in on wednesday. So maybe today’s blood sacrifice from all the little people they crushed will satisfy the mm’s. At this point, a $1.20 close, the elephants who entered at $1.30-1.32 wednesday just aren’t likely to go away- in fact, the further price dips now the more recalcitrant they’ll get- they’ll just start averaging down and waiting for a future run. Bull elephants in the mm’s china shop. Orange’s Rule: never trap an elephant. always give them a graceful exit. And the mm’s have got at least 10 or 15 true elephants in there. I mean people with $15-20,000 on the line and the pps is sitting on 90-day support. anyhow, look at the chart and tell me what you think. personally, i’ve decided to quant it tonight and see what i get.

Breaking a Rule- and it may cost me- or not

I’m in another trade. in getting in i may have broken one of my cardinal rules: i never chase a stock. this one ran very strongly wednesday, then pulled back and i jumped in looking for a bounce. the bounce did not come wednesday and i’m looking for it thursday. not only was volume huge, but the size of buys right thru EOD was phenomenal. maybe i’m just whistling past the graveyard, but i noticed that in afterhours trading the b/a and spread stayed the same as during normal hours, instead of the usual lowering of bid and widening of spread. i also am holding overnight, which i don’t like doing. we’ll just have to see how it goes. stay tuned.

And Sometimes Things Just Go Wrong…

Took my first loss too last week. I’m still up 34.09% on initial bank, but here’s what happened. On wednesday january 24th i got into JRCC at $6.30 on technicals that looked ‘decent’. It never hit my target. I got out next day with a small loss at $6.21.

I had several opportunities both days to exit at $6.54, but just wouldn’t believe all that testing of $6.54 and failing to break it meant anything. I just read scmfinance’s latest post and I made the same basic mistakes. After testing and failing to break thru a price a couple times, it’s time to bail. This is NOT an ‘investment’ game we’re playing- it’s a gain and frequency game.
Partly, I got all tangled up in and deceived by fundamentals on JRCC. It’s a low-suplhur coal company and low-sulphur coal is highly prized. blah, blah, blah. Read the charts, orange- just the charts!! But i have to say that knowing that little bit about JRCC was often a comfort, as it suggested that hard dips would be unlikely. The fact that tuesday it finally went up almost to my 10% target means nothing to me, as the important thing to me here is simply “fast in and fast out”.

6th play — the greed

balance: $2301.76

bought 23,200 shares of GFCI on 1/25/07 @ .043 and sold 23,200 shares on 1/30/07 @.039 for a loss of $116.34 or -11.52%

new balance: $2185.42

total gain after 6 plays (%): 118.54%

three words sum up this play — greed & blown opportunity. to be honest, i am not quite sure what i was thinking (if at all) and compeletely disregarded the entire philosophy of this contest — aim for 10% and if you are sure shoot for more. the bottom line is that i was not sure, took a gamble and loss. so here’s the story:

indicators showed that this one seemed to find a floor and started showing signs of a bounce, so i bought in end of the first day — perhaps a tadbit early looking back. second day started strongly and confirmed the bounce and i was going to sell if it started back down (which it did), but i got swamped at work towards the end of the trading day and couldn’t put the order in. it closed and formed either a shooting star or an inverted hammer — i couldn’t decide which of the two and needed confirmation the next day. so, it was either a bullish close or a bearish close, and i really wasn’t sure which as i thought it was too short for the run to be over, but maybe it was…i got my confirmation that it was an inverted hammer as it made a nice move-up the next day. the greed kicked in around .05 when i gambled that it would make it through and it didn’t. the second time i saw it try to push thru on the day and fail i should have been out, but instead i rode the day out and it had a terrible close. i now knew the run was over and needed to get out immediately the next day. but of course, i wanted to wait and try and sell for no gain…i never got the opportunity to and bailed as soon as it broke the support at .04.

after reflecting on the last two plays, i feel that i need to make some important adjustments to my strategy — or rather stick to the original goal of making 10% and only shoot for more when it is an absolute certainty. i have also come to the conclusion that as soon as you start to feel a play go south in the world of pinks, you should cut your losses and sell and not try to hold out for a small bounce to get you back to even — i seem to consistently fall into that trap and end up losing more money than the money i would have lossed if i had just sold for a couple percent less than even.

hopefully i can turn around this losing streak i am on soon as my weekly goals are quickly filling the gap i established in the beginning — after being several weeks ahead, i am only a couple now.

5th play — the pain that was ONGOing

well…i know readers have been awaiting this moment since i first started this experiment — my first loss. and to make sure i didn’t disappoint anyone, i made sure it was a substantial one. and so without further adieu, i present a truly bone-headed play…

balance: $2943.02

bought 6200 shares of ONGO on 1/12/07 @ .34 and sold 6200 shares on 1/18/07 @ .25 for a loss of -$590.34 or -27.77%

new balance: $2301.76

total gain after 5 plays (%): 130.18%

i’m not sure what happened here — this is pretty much a perfect example of knowing you should cut your losses and don’t. i entered the play in the first place because it seemed to be coming off a bottom of .25 and i thought if it broke .30 it would have a nice run. well, it did break .30 and it quickly moved up and i chased it of course. i couldn’t seem to get an order filled and thought it was moving so well with such great volume that i chased it almost up to the top — i bought in @ .34 and i think it peaked @ .36 (or so). the MMs started to play games and caused it to come crashing down, but i was convinced that if it closed above the trendline it could still run again the next day. well, not only did it close above the trend line but some great news came out the next morning that had to do with increasing sales which meant increasing revenue which meant the PPS should move up, right? this is the part where you should read my post on “good news” if you haven’t already because i was dead wrong. the PPS continued to drop and i was too stubborn to cut my losses and sell because afterall it broke the trend line and great news came out (once again, i point you to my post on “good news” and the possible disaster that ensues).

so finally, today, after watching it break the support it formed at .25 a couple times, i came to and decided that it was dead and at best would trade sideways for awhile. it’s hard to cut losses though because you keep thinking that it will bounce back — maybe not to the point where you will fully recover your losses, but you continually think that you can recover just a few more of those losses. the lesson learned is that once you reach this mindset — it’s time to cut and move on.

while this play set me back, i am still considerably ahead of where my weekly goals are and it taught me a valuable lesson about taking a loss in this experiment: as the weeks go on and your money compounds, even small losses will really begin to counter all of the huge gains you made at the beginning. it becomes extremely risky to take a double-digit loss and is better to take a small loss and move on than holdout hoping for a gain — one that will probably be small at best.

oh, the scandal!

it all started last night when i decided to add two commissions’ columns to my spreadsheet — one for when i buy and the other for when i sell. i use scottrade and so far for this experiment have been solely trading stocks under a $1, so the commissions are $7 + 1/2% of the principal. the function seemed simple enough:

=PRODUCT (# of shares column, entry/exit price column) *.005+7

the function worked just as it should have when it came to calculating my commissions on stocks i bought. but when i ran the function to calculate commissions on stocks i sold, excel would return an amount different from the amount scottrade had charged me — it simply didn’t make sense. so, i decided i would call scottrade and ask them why the numbers were not matching.

the representative was kind and informed me that the reason was because i was leaving out the tax the SEC places on sales. as if capital gains isn’t enough, the government has to tack on .0000307 to your commission. (that regulatory fee fluctuates although i’m not sure how often.) so, with this new-found information, i re-formulated my function:

=PRODUCT(# of shares column, entry/exit price column) *(.005+.0000307)+7

i would like to say that everything worked out, but of course, the scandal doesn’t stop there. i noticed that some of the commissions on stock sales were correctly calculated now, however, some were still a penny less in my spreadsheet as opposed to the amount scottrade charged. i quickly decided that it must be some sort of rounding error. from there, i concluded that while excel adheres to the universally practiced rounding laws (round down if the number is <5,>=5), scottrade does not and simply rounds all numbers up. so, i added the ROUNDUP function to my formula and what do you know? all of the commissions in my spreadsheet were now equivalent to those that scottrade charged.

now, i know what you’re thinking…”those are ridiculously small numbers,” but if you’ve ever seen the movie “office space,” you would understand!

anyways, just some food for scandalous thoughts…

“good news”

good news is great for traders, right? well, in my experience…not exactly. if you’re investing in a company, then you want all the good news you can get — afterall, you’re investing in the company’s future and good news usually means you’re moving towards a bright future. but if you’re merely passing through a stock as i like to say (a.k.a. trading), then good news doesn’t usually bring any promises. the truth is good news could move a running stock higher, boost a stock that is stalling or trading sideways, or cause a stock’s pps to drop. you retort, “good news causing the pps to drop! are you crazy?” however, i’m sure you’ve heard the saying, “buy on rumor, sell on news,” right?

take for example the stock i am currently losing my shirt in, which i thought was having a nice run, broke and closed above a down trend line, and looked like it was going to keep running…the next morning, great news came out and the pps dropped. oops! i must have got caught in a “buy on rumor, sell on news” play. and trust me, it hurts. i’m sitting here telling myself, “wow, i hope they issue another press release with good news to get this kick-started again.” and that’s when you know i’m in a sticky situation – i can’t help but ignore my own advice!

so, if you’re an investor, than of course good news is great, but for those of us continually passing through various stocks, don’t find yourself waiting on “good news”…you may very well blow right thru your next stop!

weekly goals

i decided i would quickly create an excel function that would detail where i hope to be at by the beginning of each week — my weekly goals. as of right now, i am doing well however i am trying to get out of a losing play at the moment that will seriously hurt my total but still keep me ahead of my weekly goals by a couple of weeks. so far six weeks into the experiment my earnings are equivalent to about where i should be by week 12 (but that is before i have sold for what appears will be a substantial loss)

4th play

balance: $2659.51

bought 190,000 shares of BANY on 1/10/07 @ .0026 and sold 190,000 shares on 1/11/07 for a profit of $283.51 and a gain of 56.7%

new balance: $2943.02

total gain after 4 plays (%): 194.3%

BANY was an interesting play and it was not one i was willing to put forth a lot of money towards simply because i thought i missed the ride. a couple of days ago it was showing some signs of reversing its recent downward trend and it became a hot topic on a board i’m part of called market millionaires (which i highly recommend as there are a lot of savy traders there who enjoy helping others). however, i wasn’t sure it would reverse the trend, so i stayed out — well, of course it made some nice gains. by the end of the day it looked as though it would close with bullish momentum so i picked up a few shares near the HOD but below the close — i wasn’t particularly fond of the price i bought in at as i thought it was fairly high so i only put less than 1/5 of my bank there ($500) .

the next day it quickly dropped by 20% as the MMs (market makers) quickly tried to shake holders out — to say the least, i was not expecting anything of this nature as it had a pretty bullish close. nevertheless, i thought we were being shaked, didn’t have much money in, so i decided to let it ride, which turned out to be a great decision. halfway through the morning, a fantastic press release was issued by the company and it quickly recovered ground and moved up on great volume (almost trading its entire float). it started to encounter resistance in the mid .004s and i sold at .0042 on a quick shake because i felt it was oversold and encountering resistance. it closed at .0037 so it turned out to be a great decision.

i have to be honest that this was not a play that i had a ton of confidence in, especially at where i bought in. fortunately, it turned out to be a fantastic play and added a few hundred dollars to the pot.

One Week In…..

We are now six trading days into The $500 Experiment. I’ve done two trades so far…

Trade 1

2007-01-04 10:47:55 xxxxxxxx Sell SCRA (Stk) 550 1.03 2.50 0.00 564.00
2007-01-04 10:05:04 xxxxxxxx Buy SCRA (Stk) 550 0.90 2.50 497.50 0.00

Trade 2

This was a quant trade at first, then developed into a t/a trade for precision exit. got in on the dip to $2.75, then out almost exactly at the top (within 5 cents of top).2007-01-10 12:47:49 xxxxxxxx Buy ONSM (Stk) 200 2.75 (2.50 comm) 552.50 0.00

2007-01-10 13:05:49 xxxxxxxx Sell ONSM (Stk) 200 2.975 (2.50 comm) 0.00 592.50

Summary
orange opening balance: $500.00
orange new balance: $592.50+13.50 (not traded) = $606.00
net gain over prev balance with this trade: 9.68%
net gain on trade itself: 7.24%
net gain over opening balance: 21.20%
minimum target after 2d trade was = $605. target met.<><><>

1 week later and i’m up 21%, somewhat better than the projected 10%. some other traders in The $500 Experiment are doing better, as far as net gain so far. it remains to be seen, however, how frequency vs gain strategies compare over time. with great skill, and few bad breaks, the hi-gain strategists may do better; but i’m noticing that for some of them their hi-gain is hurting their frequency– it’s taking them two or three days to close the trade so they have to wait those additional days for funds to settle. mine so far (fortunately) have both been daytrades. so we’ll see.

personally, i will be reaching for higher gains myself when available. i’ve been a little nervous to start out but gradually feeling less conservative. at some point, i may also pull some funds into my forex acct to achieve greater frequency (can trade 24 hrs a day, Sun 4pm to Friday 4pm).

patience is more than a virtue — it’s an asset

in my last post, i mentioned that my only complaint thus far is the number of trades i am averaging per week. when you pay attention to the markets daily, you tend to get overly anxious to enter a play when you’re not in one — afterall, to an investor, having your money not working for you is almost as frustrating as losing money. however, there is no sense in trying to maximize trades at the expense of making gains. so while frustrating, it’s better to simply not jump into a play out of impatience and lose money than it is to wait for your targeted entry point.

i bring this up as i am starting to get eager to enter a play, but none of the stocks on my watch list have hit the entry point i am looking for. one stock that i have been watching was within one tenth of a cent of hitting my entry point and while difficult, i forced myself to not enter. the reason being that i targeted my entry as the breakthrough point for a stock that has reached a double-bottom — it didn’t hit that point and has since gone back down slightly to continue forming that bottom, but you can bet when it reaches my entry point, there will be zero hesitation on my part to pull the trigger. until then, i am patient and continue to wait.

summary after 3 weeks

here’s a chart showing the progress after 3 weeks. everything is looking great and my only complaint is that i’ve only been averaging 1 trade/week, but this is probably just due to the holidays.

3rd play

balance: $1554.70 (i had $30.25 lying around so i added it to the pot)

bought 4,000 shares of TDCP on 12/28/06 @ .385 and sold 4,000 shares on 1/3/07 @ .67 for a profit of $1104.81 and a gain of 71.06%

new balance: $2659.51

total gain after 3 plays (%): 165.95%

TDCP is one of my favorite stocks to play because of the nice profits i’ve made, low float, and it’s a great company with a lot of promise (though i learned a number of months ago to only trade it technically for now). it was on a major downtrend and became way oversold as you can see from the RSI, Stochastics, and StochRSI. once I saw the nice bottom it started to form around .35 and a hammer started to form, i bought in at .385. it had a nice run up over the next couple days breaking all the resistance easily until it got to about .70. indicators were showing overbought now and the momentum seemed to be swinging, which didn’t look good for breaking the resistance. after it tried to break the resistance three times and couldn’t that day, i figured a profit of 70%+ wasn’t bad and sold. the next day it still couldn’t get through the resistance, retraced and fell.

2nd play

balance: $1224.27

bought 20300 shares of CYNS on 12/20/06 @ .041 and another 9300 shares on 12/21/06 @.042 and sold all 29600 shares on 12/26/06 @ .052 for a profit of $300.18 and a gain of 24.5%

new balance: $1524 .45

total gain after 2 plays (%): 52.45%

i took a risk entering this play where i did because there were not any tell-tale signs that it would reverse. i entered because i felt it was very oversold and would be making bottom around .04 — i believe a previous support line was made there some months ago. honestly, there were not many reversal indicators that led me to enter when i did and it was more of a gut instinct reacting to the stock being oversold. at any rate, i bought about 2/3 one day and another 1/3 the next day when i was even more sure that it would be making bottom in that area. it dipped down to .032 and i was on the verge of selling and cutting my losses, but it started to finally come off the bottom. i actually exited this one a little early because i felt it was losing momentum and was heading back down, but the sellers took over again as the day went on and it made a nice close. over the next couple days it held its gains and eventually started to head down, so i wasn’t displeased with my early exit. after all, as a good friend says, “there’s no such thing as a bad profit,” and i’ll take the 24.5% i made any day.

1st play

balance: $1,000

bought 33,000 shares of GTHA on 12/13/06 @ .03 and sold 33,000 shares on 12/15/06 @ .0375 for a profit of $224 and a gain of 22.4%

new balance: $1224

total gain after one play (%): 22.4%

GTHA showed up on my radar a little late, but i can’t complain about a gain of 22.4% on my first play of the experiment. GTHA was extremely oversold as the RSI, Stochastics, and StochRSI show. i entered at the end of the second day of the run at the HOD. looking back this may not have been the smartest move as it closed right on a strong resistance line of .03, but i felt that it had serious momentum over the last couple days (full white candles) and was holding the 5MA and 10MA. the next day it quickly broke thru the resistance at .03 — if it had retraced back down below .03, i would have sold, as the resistance there would have proven to be too strong. once it broke thru though, it quickly ran up to .04 where it encountered more strong resistance. i held on waiting for it to break the resistance but it retraced back down into the .03s and i held because it held the 5MA and 10MA. the next day it broke the resistance at .04 and i seriously thought it could be a great run, but it fell back down below .04 and i sold because i didn’t think it had the momentum to get thru .04 again and the stochastics were beginning to show it as being overbought.

the strategy

i believe that every stock is constantly cycling through phases of being under-valued and over-valued and that the market is largely dictated by investor sentiment, momentum and trends. because i’ve put a lot of time into the rough and tough land of pink sheets, i don’t give much attention to fundamentals and often times only know the ticker symbols and not the names of the companies i trade. i find why limit yourself to a handful of companies with solid fundamentals when every stock makes gains frequently (even companies that are scams)? i trade using technical analysis as opposed to fundamental analysis and in the future i hope to utilize more quantitative analysis. there’s no wrong or right form of analysis to use, but that’s just my personal preference — it’s the way i make money.

identifying a play is simple in my book — i am a bottom feeder. i look for stocks that are oversold and have made a bottom (under-valued). it’s difficult to tell where a stock makes bottom, so i look for support lines that develop and then pay attention to momentum indicators to see whether or not the stock is going to reverse. obviously, i cannot predict a bottom, so once i see that a stock reaches a low point and appears to be reversing, my goal is to jump in as close to bottom as possible. as of right now, the indicators i like to use are: macd, moving averages, rsi, dmx, stochastics (fast & slow), candles, obv, bollinger bands, and stochrsi. i should say that i do use one bit of fundamental analysis before jumping into a play — i always check to see if news from the company led to the decline in PPS and whether news from the company has emerged in the last couple days, as that will affect a technical play. i learned my lesson the hard way when i found what looked like a great bottom play, bought in, and then saw that they had released news an hour ago annoucing they were laying off 50% of their workforce — oops!

my goal will be to try to make maximum plays vs. maximum gains, so look for me to make about 1.5 plays/week. i think orangequant explains the maximum plays vs. maximum gains on the well down below.

hopefully by observing the plays i make, you’ll better be able to see how i play stocks. i’m not suggesting you play stocks in the same way, but maybe you can use some of what i use and come up with your own creative way to make money in the market.

* as a disclaimer, i just want to say that i will not typically post any plays before i enter because i think that may disrupt the play, so you’ll just kind of have to believe me. maybe i’ll start posting screen shots of my account to show the gains — we’ll see…