Taking a stab and rational thought
- Thread starter Brandonf
- Start date
Quote from JimmyJam:
Before I forget, or you decide to do something more useful with your time than post on ET, I have to say:
That is one absolutely brilliant post.
(there we go, nice and clean too)
Good trading,
Jimmy Jam
Thanks. It was certainly one of the most important, and hardest, lessons for me to learn. Once I did learn it my activity went way down, my brokers wife was probably not as happy with me, but my own account started to grow at a much higher and more consistent rate.
When I was 17 years old I had been dating Theresa for about 9 months when her older sister got married. Since we had been going out for some time I was, of course, expected to show up at the wedding and the reception. I did not think this would be too much of a problem, and it would not have been except for the fact that the wedding was on Saturday and my cousin Chad turned 21 on Friday...soooo.....come Friday evening off I went, and come Saturday morning, off I still was, and come Saturday afternoon..off I still was. The wedding stuff started at around 1pm I think, I missed the wedding totally, and around 430 I showed up at the reception with my cousin and some friends (there was a free bar). Theresa was obviously pretty upset with me, and rightly so and she dumped me telling me my appearance was too little, too late and for the wrong reasons. Now, you might be asking this: What does your mothers tormented early 40's have to do with the stock market? A lot it turns out!
The last few weeks in the market have been, to say the least, eventful. We had a major decline, one that brought all the bears out of their caves pretty quickly, and just as quickly the bulls took over again and made back the losses. There are though, at least as far as I see it, a few substantial problems. First, there was NO VOLUME ON THE RALLY UNTIL FRIDAY. This is problematic on several levels. First of all Friday was not all that great of a day, the markets gave back a lot of their earlier gains and could not punch above resistance, in fact they might just be setting up a 2b sell (see Trader Vic) here. Second, volume should have been higher on Friday due to triple witching, all kinds of crazy stuff happens on witching, and volume is almost always higher. I do not think that the higher volume had ANYTHING TO DO WITH BUYERS WANTING TO BUY MORE STOCK. So, even though the the market has rallied back, it did so on ugly volume until friday. Now, some might say better late than never, but I tried saying the same thing to Theresa, she still dumped me, and wouldnt let us in for the free booze too boot! Too little, too late and FOR THE WRONG REASONS.
The next point that I'd like to make is about the setups in the maket. I am a big believer in "the path of least resistence", in other words the market is going to move in which ever direction it is the easiest overall for it to move in. One way to determine what the path is, is to simply look at the chart formations of the various stocks in the market. At this particular time the majority of long type setups are in very extended (ie risky) stocks, things that I myself would not be too excited to touch. On the other hand there are abundant short setups across the board, in a wide variety of sectors and they look fresh. To my way of thinking this could be the final nail.
So, what to do? Well, as you can see I am mostly bearish at this point. That does not, however, by any stretch mean that the market has to go down. I reserve the right to be wrong as often as the next fool, sometimes more so. What this means is that it is very important to have ideas all the time on all sides of the market, which is actually easier than it might seem. You simply look for the relative strength on both sides of the market and go with it. So, on the short side I have as I said several names I'm fond of, stocks like TOL, HD, QCOM, AMD, BAC, NCC, YHOO, and NYX. Hopefully as you look at these you can find some technical commonalities. On the long side there are also a few stocks that I could see buying on breakouts, including: AMZN, SSYS, HXM, RIMM, and LOGI.
If you have any comments or questions please feel free to email me bfred76 at gmail.com. Also, as soon as I get my site up I will be doing in depth writeups on some of the setups, in which you will get the technical AND FUNDAMENTAL basis behind each play. For me both types of analysis are equally critical and I would not get into a trade without the support of both. I want to buy good stocks in good companies, and you must realize that a stock is nothing more than a commodity representing ownership of a company, which is why there can often be such a disconnect between value and price. A stock is not a company, a company is not a stock, but when both line up and offer a compelling story heaven and earth often move for you.
The last few weeks in the market have been, to say the least, eventful. We had a major decline, one that brought all the bears out of their caves pretty quickly, and just as quickly the bulls took over again and made back the losses. There are though, at least as far as I see it, a few substantial problems. First, there was NO VOLUME ON THE RALLY UNTIL FRIDAY. This is problematic on several levels. First of all Friday was not all that great of a day, the markets gave back a lot of their earlier gains and could not punch above resistance, in fact they might just be setting up a 2b sell (see Trader Vic) here. Second, volume should have been higher on Friday due to triple witching, all kinds of crazy stuff happens on witching, and volume is almost always higher. I do not think that the higher volume had ANYTHING TO DO WITH BUYERS WANTING TO BUY MORE STOCK. So, even though the the market has rallied back, it did so on ugly volume until friday. Now, some might say better late than never, but I tried saying the same thing to Theresa, she still dumped me, and wouldnt let us in for the free booze too boot! Too little, too late and FOR THE WRONG REASONS.
The next point that I'd like to make is about the setups in the maket. I am a big believer in "the path of least resistence", in other words the market is going to move in which ever direction it is the easiest overall for it to move in. One way to determine what the path is, is to simply look at the chart formations of the various stocks in the market. At this particular time the majority of long type setups are in very extended (ie risky) stocks, things that I myself would not be too excited to touch. On the other hand there are abundant short setups across the board, in a wide variety of sectors and they look fresh. To my way of thinking this could be the final nail.
So, what to do? Well, as you can see I am mostly bearish at this point. That does not, however, by any stretch mean that the market has to go down. I reserve the right to be wrong as often as the next fool, sometimes more so. What this means is that it is very important to have ideas all the time on all sides of the market, which is actually easier than it might seem. You simply look for the relative strength on both sides of the market and go with it. So, on the short side I have as I said several names I'm fond of, stocks like TOL, HD, QCOM, AMD, BAC, NCC, YHOO, and NYX. Hopefully as you look at these you can find some technical commonalities. On the long side there are also a few stocks that I could see buying on breakouts, including: AMZN, SSYS, HXM, RIMM, and LOGI.
If you have any comments or questions please feel free to email me bfred76 at gmail.com. Also, as soon as I get my site up I will be doing in depth writeups on some of the setups, in which you will get the technical AND FUNDAMENTAL basis behind each play. For me both types of analysis are equally critical and I would not get into a trade without the support of both. I want to buy good stocks in good companies, and you must realize that a stock is nothing more than a commodity representing ownership of a company, which is why there can often be such a disconnect between value and price. A stock is not a company, a company is not a stock, but when both line up and offer a compelling story heaven and earth often move for you.
Proper Money Management and Risk Control means never putting yourself in a position that one bad trade, or even a series of 10, will put you out of business. Remember, your primary business objective must be to stay in business.
What is Money Management and Risk Control?
Money Management and Risk Control is the portion of ones business plan (trading system) that tells you how much you can risk on one trade. What amount of risk should you be willing to take? A proper Money Management component to your business plan not only assures your longevity simply by not allowing large positions, but also by removing significant psychological barriers in trading. Let us quickly quote Larry Hite from the book Market Wizards (which we would recommend you all read) by Jack Schwager. "Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." Larry Hite. Mr. Hite manages futures, and the risk control modules used are slightly different, never-the-less the principles are much the same.
Incidently should you be thinking you can not make good returns taking such small risk you should know that when Market Wizards was written (1988) Larry Hites funds had a compounded average yearly return of 30%. This was done taking very limited risks. How many funds consistently do 30%, not many. If you can consistently make 30%, people will beat your door down begging you to manage money for them.
What is Money Management and Risk Control?
Money Management and Risk Control is the portion of ones business plan (trading system) that tells you how much you can risk on one trade. What amount of risk should you be willing to take? A proper Money Management component to your business plan not only assures your longevity simply by not allowing large positions, but also by removing significant psychological barriers in trading. Let us quickly quote Larry Hite from the book Market Wizards (which we would recommend you all read) by Jack Schwager. "Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical." Larry Hite. Mr. Hite manages futures, and the risk control modules used are slightly different, never-the-less the principles are much the same.
Incidently should you be thinking you can not make good returns taking such small risk you should know that when Market Wizards was written (1988) Larry Hites funds had a compounded average yearly return of 30%. This was done taking very limited risks. How many funds consistently do 30%, not many. If you can consistently make 30%, people will beat your door down begging you to manage money for them.
I hope everyone is enjoying this journal, and also seeing that you can be wrong and still make money...thats always been for me an important part of my overall success. If you do have any comments or questions as we go along please feel free to post them here...it is my hope that this can become a good resourse for traders who like to combine a technical and fundamental method to the markets.
Brandon
Brandon
Whenever I was sitting on my butt not doing much my grandfather used to start in about how there sure seemed to be a whole lotta nothing going on: Well yesterday in the market, it seemed as though there was a whole lotta nothin goin on for sure.
About the only thing of note would be that you can be wrong, or at least not be right, yet still make money. I make note of this because I had a very bearish tone in yesterdays comments, yet the market has not yet followed through on this, however the setups we did get on the stocks I am following all did very nicely and have some nice open profits. It speaks well to the merits of a relative strength approach.
A few new names to keep an eye on: Education stocks right now seem to be looking pretty good across the board, for example DV and EDU both have nice bases and a breakout would probably offer a nice buy in either of those two. Other names that stand out include CLB (one of my favorite COMPANIES in the world), HURN and MTRX. Aside from that there is a whole lotta nothin. The theme right now for me is going to be caution since the markets are pretty âoverboughtâ at this point if such a thing truly exists in a bull market, at any rate things are extended and overall risk is pretty high there. Yet at the same time the market does not want to seem to stay down for anything at all either. Cash and patience will be ruling the day for the time being for me.
About the only thing of note would be that you can be wrong, or at least not be right, yet still make money. I make note of this because I had a very bearish tone in yesterdays comments, yet the market has not yet followed through on this, however the setups we did get on the stocks I am following all did very nicely and have some nice open profits. It speaks well to the merits of a relative strength approach.
A few new names to keep an eye on: Education stocks right now seem to be looking pretty good across the board, for example DV and EDU both have nice bases and a breakout would probably offer a nice buy in either of those two. Other names that stand out include CLB (one of my favorite COMPANIES in the world), HURN and MTRX. Aside from that there is a whole lotta nothin. The theme right now for me is going to be caution since the markets are pretty âoverboughtâ at this point if such a thing truly exists in a bull market, at any rate things are extended and overall risk is pretty high there. Yet at the same time the market does not want to seem to stay down for anything at all either. Cash and patience will be ruling the day for the time being for me.
First of all I want to apologize that over the last couple of days I have not put out a great bit of commentary. This will remain the case for the next few days though because along with a dull market we have family around that I have to be entertaining and whatnot during the day and evening. I have left myself plenty of time to do the work required to scan the markets, to form an opinion and to find what I feel are good opportunities, but it does not leave me a heck of a lot of time to "put pen to paper" and give ya'll my classic text. Have no fear there because as the Governator once said "I'll be back", in my case it'll be early next week!
Ok, so now that I've gotten that out of the way, lets have a look at the market, where the tune remains "a whole lotta nuthin going on" In fact a whole lotta nuthin has been goin on for so long that we now have some pretty coiled up indexes and stocks out there, and I would not be suprised but that we see some rather excited market action at some point in the next few days.
The major indexes have all been trading down to sideways after their low volume rally off the 50 day moving average. I'm taking heart though in the fact that this small pullback/base we are building after the rally has been on even lower volume than the rally was, so in relative terms the price and volume relationships at this point are "ok"....not great, but not passing a kidney stone with no pain killers terrible either, but that is a story for another day and time...back to the market.
To my way of thinking the most important thing about a stock is its own and its sectors relative strength, both versus the market and versus other groups and stocks in that group. I'm always looking at stocks in relative, never absolute terms. By doing this I have a nice list of strong stocks and weak stocks that give me plenty of buying and shorting opportunities when the market puts out the opportunity sign (which in spite of what your broker tells you about their being 10's of thousands of stocks out there, which is true enough, DOES NOT OCCUR EVERY SINGLE DAY, NOT EVEN EVERY SINGLE WEEK sometimes).
At this particular time I've started to swing around to being slightly more bullish than bearish again. Of course as "on" as my market timing abilities have been the last few weeks this probably means sell like hell, but I figure that overall my analysis and methods have given me a pretty cushy life and the only time I experiance too much pain is when I deviate from them, so now is probably not the time for another "adventure". Some stocks to watch that not only have impressive technical traits, but also nice funnymentals as well include HURN, CHE, CPLA, OYOG, PRAA, TKP and PCAR. This weekend once the crew have all left the village I will make some charts of each of these names as well as show you exactly how and why each of these stocks was picked. It's my hope that by doing this you will get a little better of an understanding into how I about picking my stocks.
Well, this ended up being longer than I thought it would be so in order to not bore you too much more I shall bid ya'll good bye till tomorrow. On an unrelated sidenote: No one has yet offered to buy me a Giordano's, I'm patient though.)
Good luck and good trades.
Brandon
Ok, so now that I've gotten that out of the way, lets have a look at the market, where the tune remains "a whole lotta nuthin going on" In fact a whole lotta nuthin has been goin on for so long that we now have some pretty coiled up indexes and stocks out there, and I would not be suprised but that we see some rather excited market action at some point in the next few days.
The major indexes have all been trading down to sideways after their low volume rally off the 50 day moving average. I'm taking heart though in the fact that this small pullback/base we are building after the rally has been on even lower volume than the rally was, so in relative terms the price and volume relationships at this point are "ok"....not great, but not passing a kidney stone with no pain killers terrible either, but that is a story for another day and time...back to the market.
To my way of thinking the most important thing about a stock is its own and its sectors relative strength, both versus the market and versus other groups and stocks in that group. I'm always looking at stocks in relative, never absolute terms. By doing this I have a nice list of strong stocks and weak stocks that give me plenty of buying and shorting opportunities when the market puts out the opportunity sign (which in spite of what your broker tells you about their being 10's of thousands of stocks out there, which is true enough, DOES NOT OCCUR EVERY SINGLE DAY, NOT EVEN EVERY SINGLE WEEK sometimes).
At this particular time I've started to swing around to being slightly more bullish than bearish again. Of course as "on" as my market timing abilities have been the last few weeks this probably means sell like hell, but I figure that overall my analysis and methods have given me a pretty cushy life and the only time I experiance too much pain is when I deviate from them, so now is probably not the time for another "adventure". Some stocks to watch that not only have impressive technical traits, but also nice funnymentals as well include HURN, CHE, CPLA, OYOG, PRAA, TKP and PCAR. This weekend once the crew have all left the village I will make some charts of each of these names as well as show you exactly how and why each of these stocks was picked. It's my hope that by doing this you will get a little better of an understanding into how I about picking my stocks.
Well, this ended up being longer than I thought it would be so in order to not bore you too much more I shall bid ya'll good bye till tomorrow. On an unrelated sidenote: No one has yet offered to buy me a Giordano's, I'm patient though.
) Good luck and good trades.
Brandon
I can not think of too many good things to say about the market at this point in time, very important groups are breaking down as well as leading stocks. Interest rate sensative groups esp are getting hammered. Currently I am short the MDY and the UTH. I will do some research and try to find the best stocks with in the indexes to be short, but for the time being I'd rather have a position on than not. Commodity groups also appear to be rolling over, especially steel. I will be shorting NUE if it trades under 58.00