My Market Analysis for 27/01/2010

After observing the market behavior last night, I believe the market is undecided where to go…at least until the FOMC statement is realized tonight at 2.15 EST. Technical-wise, the tank seems to have lost momentum. However as the downtrend is still intact, I believe we going flat to down in the next 1-2 days before this downtrend continues.

My Market Analysis for 25/01/2010

We got the tank that we had been waiting for since the beginning of the year. All 3 indexes had broken decisively through the daily 50 MA last week which means that we are currently in a downtrend. Last Friday, the Dow closed below its monthly support while NASDAQ and S&P closed right at my supports for the month. This means that either we are going to bounce over the next few days back to test the 50 MA (and then continue to tank) or the indexes (NASDAQ and S&P) may gap down or break below their respective supports in the first half of the day and all 3 indexes will continue its downward slide.

Presently, I’m still not sure which way it will go (at least until after the first hour of market open) but I’ll stick with the indexes gapping or moving below my month supports (1091.75 for /ES, 1790.5 for /NQ) and that today and the week will end down.

Recent Run-Up in US Markets is ... Abnormal? - CNBC.com

Recent Run-Up in US Markets is ... Abnormal? - CNBC.com

My Market Analysis for 20/01/2010

The market bounced off my supports yesterday. But it seemed to be too little and with the financials looking weak, I do not think this bounce will follow through today. I’m still sticking with my analysis that the markets are just gyrating with increasingly bigger swings due to the earnings season. We should breakout of this range that the indexes had been in since the start of the year sometime late this week. Currently there are more indicators pointing to a break downwards rather than a break upwards.

I believe that we have passed the high of the month already and from now on, it should be sideways and down.

My bro in the Today newspaper 19th Jan 2010 Page 12

My Market Analysis for 19/01/2010

The market tanked as expected on the last day of the week however it stopped right at the fibo retracement and fibo fan support for the S&P.

S&P daily chart


Dow daily chart


I believe the indexes are all at support now. But seeing how the markets tanked on Friday, it won’t be surprising to see some follow through on the downside today and tomorrow.

With the full year earnings season in full swing now, a lot will depend on earnings (especially the banks) and the market’s expectation of the companies’ earnings. Citibank and Intel will be reporting their earnings today followed by Wells Fargo and Bank of America tomorrow. Goldman and Google will be reporting their earnings on Thursday. We shall see whether their earnings will be as disappointing as JP Morgan’s last Friday.

Personally I feel that the bounce in the last hour of trading on Friday should be the end of last Friday’s tank and we shall see the indexes move back up to their respective highs in the next few days.

However this does not mean that the market will continue its rally but that with the increase in volatility, we shall see bigger and wilder swings in the markets for the next few weeks.

My Market Analysis for 13/01/2010

The S&P completed an evening star on the daily charts yesterday right at the bottom of its upward channel since March 09. Any break below this level will be the start of the overdue market dip that I’ve been expecting since December. The Dow and NASDAQ’s charts don’t look good either with the Dow at the bottom of the uptrending channel since March 09 and NASDAQ forming a bearish candlestick pattern. Volume has also been increasing on bearish days and decreasing on bullish days over the past 2 weeks.

My Market Analysis for 12/01/2010

I just realized that I did not post my market analysis for the past week. We had an up signal on the first trading day and also first week of the year and I positioned myself with calls for the indexes and a few stocks for the whole week. However the current rally seems to be nearing exhaustion and we might finally be ready for a dip. I no longer think that the markets are in a retracement of a bear market as all 3 indexes had broken critical resistance, with the S&P breaking it strongly only last week. I would think that all market reversals to be temporary dips in an uptrend.

I also think that the markets had rallied too far too fast over the past few months with a dip. I’ll be expecting a market dip from next week onwards. However beginning from this Monday, we’ll be in earnings season and this would be an important factor in determining the direction of the markets.

I’m expecting the S&P 500 to reach around 1170 on the S&P by the end of the month. We might see a touch and go situation where the S&P will hit 1170 and then retrace strongly. This rally has shown signs of exhaustion for a long time, however it is still holding up due to the lack of bad news. Bad news during this earnings season would affect the S&P and the Dow very adversely.

As for crude, I just realized that there is a cup and handle pattern with 2 supporting fibo patterns indicating an uptrend so I’m changing my view from bearish to bullish. I believe it will be going through a few days of weakness before rallying to 96 by end May 2010.

My 6 biggest losses of 2009

Back in Nov 09, having lost huge sums on money on trading, i had all but given up. Deciding to stick to business, i ignored my charts for the whole month. It was when i was having a holiday in China with my in-laws that i thought back to trading and business, and the life that i had wanted to build for myself. I had always been obsessed with money-making ideas that only require an initial large effort and then minimal effort to maintain but with continuous or increasing income generating capabilities. I found business to be my calling, being born into a family of businessmen. In the 1st year of college, i started helping out in the family business and also had a few businesses of my own on the side. Both my grandparents own a range of different businesses and my uncles and aunts are also mostly running their businesses too. 2 years ago, I married an amazing lady with a similar background as me. We often share long talks about businesses and business ideas. I’m particularly obsessed with the idea of starting a business with as little capital as possible, basically keeping risk under control. My business partners would know that very well, especially the part when I keep refusing to expand the business because I feel that certain ideas were too risky.

Then I found out about stock trading and investing. At first, I found it to be fascinating. Imagine you could compound a small sum of money over time into a huge amount! And all you had to have was a laptop. The best part was I loved reading and analyzing things. So reading the news articles were not a problem. In fact, I had been doing all these before I started trading. However I totally underestimated the importance of psychology in trading. In business, if you had gotten some business concepts wrong, you could compensate for that by working extra hard. Hardwork can also eliminate almost all character flaws. NOT FOR TRADING. In trading, hardwork will only INCREASE the losses.

As I had posted in my previous blog post, i traded without any idea of a stop loss or time stop. I will hold a trade over a long period of time until I felt that the trade is no longer moving in my direction. There was a sub-conscious need for me to be right at least most of the time and often I felt it was important to find a set of indicators that will serve this purpose.

My trading went from small number of profits then one big loss. This occurred many times. Then, thinking that I should focus on home runs, I started looking for the one big trade that can score the biggest amount of money. Unfortunately, I found one. This initial big profit was followed by an even bigger loss and then another mother of all losses when I wanted to make it all back with one trade.

After these devastating trades, I felt very depressed and decided to focus on business. I did a few things half-heartedly that did not go anywhere. The pain of the loss is just too much. Then in order to allow myself to let go, I decided to go through all my trades for the year. Luckily TOS has a profit and loss statement that allows you to go back all the way to your very first trade.
After trading for so long and never looking back at my trades, I was totally surprised by the results. Of a total of a total of 223 trades that I made trading the stock market, 142 are profitable trades and 91 are losing trades. That means I’ve got a success rate of 63.6% and a failure rate of 36.3%. This is a good enough success-failure rate.

Out of the 91 losing trades, only 6 trades constitute almost 70% of my total losses, with only 1 trade making up 45% of my total losses. And the most irritating thing is that if I had placed a 10% capital stop loss to only these 6 trades, I would be UP USD 20K for the year. This proves that there is nothing wrong with my trading strategy and indicators; it is only my emotions and absence of a pre-defined stop loss that has killed my trading.

In order to categorize and remember these trades for all eternity, i've decided to put them on my blog. Btw, most of these trades had been executed without following any of my usual buy or sell signals (i look and look but just can't find any) and hence were mostly done out of over-confidence.

Also I found out that except for the last big loss, ALL these 6 trades were done after an exceptionally good winning streak that boosted my self-confidence and let the devils emerge from me. The last big losing trade was made out of desperation; wanting to make back the profits that i had lost, i practically did a showhand. Of course the last big losing trade for the year was also the mother of all my losses, and it alone accounted for 45% of my total losses for the year.

I also had no sense whatsoever of a stop loss or time stop, and let a number of my options expire worthless. Now looking back, i almost couldn't believe the number of warning signals that i had ignored when i allowed my options to depreciate and allowed my losses to accumulate to stratopheric levels.

My first big loss for the year 2009

Short Gold when it break 50 day moving average

As you can see, it never really break the 50 day moving average (red line) but instead gapped and rallied the very next day. I held on, believing it should come back down soon. And when it finally seemed to be coming back down, i added (twice) to my original position. Finally gave up after it gapped up again. Anyway gold is still above my original entry level as of today.

2nd big loss for the year 2009

Short GS for reasons i couldn't figure out


3rd big loss of the year 2009
This involved trading GS intraday. I allowed an intraday trade to turn into a day trade. I couldn’t reproduce the trades here as the intraday charts are not available anymore.

4th big loss for the year 2009

Short Gold-I think I used fibo but I did not wait for it to break OP before entering


5th big loss for the year 2009

Short Dow and S&P. I entered on a short trade because I believed very confidently that the Dow or S&P should not have enough momentum for a rally above their 200 day moving average. I exited all my positions just before the indexes made a dip

6th big loss for the year 2009

Short Dow and S&P. Thinking that I had missed out on a good tank, I entered on LEAP puts for the DIA and SPY. However the indexes never looked back and blasted through the roof. As of today, it is still above my entry levels. Again I exited my positions before a major dip.

I finally realized the importance of a STOP LOSS

After 3 and a half years of stock trading and investing; spending countless hours and nights poring through financial reports, stock charts, reading tons of books and attending numerous stock trading courses. Endured lots of criticism and explanations from eager relatives that stock trading and investing will never be profitable and that I will lose all my money in the long run.

Then came the roller-coaster ride from loss to profitability and back to loss and then some more loss when I tried to make it back as quickly as possible, at the lowest point having a drawdown of more than 250K of the money I made doing business. It was almost all the money that I had ever made through business and because of that, I spent countless sleepless nights worrying about my financial future. At the very bottom, I almost succumbed to external pressures to give up on trading and almost believed that trading is something that will never make money.

However in the process, I learnt a great deal about myself; my weaknesses and strengths and why I lost so much trading. Most importantly I learnt that trading is something that I will always want to do.

I spent a lot of time in the last month of 2009 doing research, especially reviewing my past trades, and found some really surprising facts about my trading. Of a total of 223 trades that I made trading the stock market (18 more if you include my forex trades and a lot a lot more if u include my forex paper trades), 142 are profitable trades and 91 are losing trades. (I might scalp in and out of a trade but I’ll still consider the total trades as one trade.)

Of course, I spent much more time reviewing my losing trades (I shall not put any actual numbers here) and I realized that if I put a 10% stop loss to just 6 of my largest losing trades, I could reduce my losses by 60%. And of these 6 losing trades, only 1 made up 30% of my total loss for the year. And most importantly, if I had put a 10% stop loss to just these 6 trades, it could have turned a huge losing year to a reasonably profitable one. I finally can appreciate the great importance of setting STOP LOSSES.

I also realized that for most of my trades, I do not have a clear stop loss. The profit target is usually clear, but the stop loss is often not considered. Hence, I had modified my trading so that there is ALWAYS a clear stop loss.

Recently, I also realized that timing is an important issue especially with options trading. Hence I will also have a timing stop loss. If the trade does not move in my direction within a specified time, I’ll also exit the position and wait by the side lines. I’ll rather miss out on a good move than to be stuck in a bad one. With the huge universe of stocks to trade, there will be more than enough opportunities to trade everyday.