Saturday, April 10, 2010

Trading Do's and Don'ts

Don't trade when you're angry, tired, depressed, distracted, or sick. And never ever trade when you're drunk (I just bought what?).

Don't trade based what on some talking head says on CNBC.

Don't trade what Cramer says just because he says so.

Never chase a trade.

Do let the market come to you.

Do have patience.

Do have goals, and make them realistic and reasonable.

Do keep meticulous records of your performance, every single day.

And most of all, do your homework. Every day.

Do good!

Preparing for Disaster

Dr. Steenbarger recently wrote about recovering from a disk crash. If you use computers for anything as important as trading, it is vital to have a rock-solid backup plan and stick to it. There's two main parts to this: data protection and connection protection.

Data protection

Here's what I do: I keep all my important data on the primary disk in my PC. This is all replicated on a file server on my local network. Whenever I change an important file, I copy it to the file server. Weekly, I copy the data to a separate laptop PC and make another copy on a removable hard drive. Whenever I visit my summer home, I take that with me and copy it onto the PC there. I have one more copy on a USB stick that resides in my safe deposit box. The key is multiple backups in multiple locations. Having two copies of your data sitting in the same room does you no good if you're struck by a fire, flood, or theft.

Connection protection

Just as bad is if you're about to sell some big position because the market is turning over and your PC crashes. That is very not so good. Here's what I do: I have my trading platform open on two different PC's during the trading day. Both are plugged into a battery backup UPS. I keep a lnadline and have a modem so I can resort to dialup if my cable connection fails. And I have my broker on speed dial so I can phone in an order if all else fails.

Of course none of this will help if Martians land on Wall St. and everyone in America is trying to exit their positions at the same time. But if you're trading for a living it's still important to do as much as you reasonably can to avoid that horrible "uh oh" sinking feeling when the screen goes blue.

Thursday, April 8, 2010

Followup on storming the 11K level

Here's something I sent out yesterday to someone who asked me about market direction. I thought I'd share it here. Since I wrote this, we've seen two runs at the 10,850 support - both have held:

My last two trades were sells. I haven't entered a new position in a week now. I think the problem is a combination of the fact that we've had a long unbroken upward run that's running out of steam just before reaching a natural barrier (the 11,000 mark in the Dow). I think we're going to see a few attempts to push through 11K (see the last three days in the Dow) and they'll fail taking us back to the first support around 10,850. I think that will give the market a chance to rest and reload for the next charge. This sort of thing seems to happen a lot at these levels. Check out the action the last few times the Dow has tried to cross 11K (the first one was in 1999). Also, the VIX is about as low as it's been for a few years lately.

Tuesday, April 6, 2010

Assault on 11K

Well, it looks like the Dow, having closed at 11,973 today is gearing up for its initial assault on the 11,000 mark. The attempt is likely to come sometime this week, maybe tomorrow. And I predict it will fail. Just like it did in in early May 1999:

Note the similarities between then and now. My guess is that the Dow is going to spend some time bumping up against the 11K mark, then pull back to regroup for a second assault later this month that will be successful.

In the meantime I sold my stake in DRYS today at 6.19. I am now 32% in cash (mostly from appreciation) and waiting for some form of pullback to buy more. YTD, I'm up 11.1%