July 31st

I took two trades near the open of the market and scalped an easy $50 in my live account. I was out egregiously early on both however, capturing only 8.5% available to me on the first and 17% available to me on the second. Until I get a specific exit plan in place and until I can become more familiar with this style of trading, I will continue to try only for the easy money.

I moved to my paper-trade account thereafter and was relatively inactive with clicking the buy and sell. Mostly I was watching and mapping movement on the screen, looking for patterns or anomalies which might yield a clue to future movement. I was paying particular attention today to gap-ups and gap-downs between 5-min candles, especially where direction changes. I don't know if there is anything of note there yet. One stock tracked over one day can't yield a measurable trend.

This trek I've set out on sure does take patience. At times, I really feel like I am searching where I shouldn't be searching and probably tripping over what is crucial. One thing has not waned in the months I have been doing this and that is my desire. I still want it very badly. The cost is high though; opportunity costs are far greater than the money I've lost. Yet, here I sit faithfully while the markets are open and I think about the stocks when I am not sitting here.

I just have to keep the faith that I'll absorb it. To all of you who are where I am, I also say, "keep the faith."

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4 for 6 winners for 67% success. Gain of $65 in 6.5 hrs of trading; $50 on 2 for 2 in 2 hrs of live trading and $15 in 4.5 hrs on 2 for 3 paper-trading.

July 30th

Again, day-job has been busy and it left only a relatively few minutes to paper-trade today.

I logged in about 3:30 pm and found FAS dropping EOD as the markets did the same. Because I missed the beginning of the move, I decided to play safe and wait for a reversal. At 3:36, I scalped a quick re-trace for 12 cents then got out when price stalled. FAS resumed its trip down... a smart play might have been to short there but I don't have that kind of mojo yet! Ha.

Went head hunting on SKF as it topped out with the drop in the markets. caught it short at $34.95 and took 20 cents from it. The third trade of the day was a scratch trade on FAS.

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2 for 2, a 100% win rate. Gain of $150 in 30 minutes of paper-trading. One scratch trade not included .

July 29th

Just barely had a chance to get in some market time today as day-job continues to be busy.

One paper-trade, a short on FAS off the big volume spike at 3:45 pm. This was a high probability signal but a trade which I should have stopped out of on any other stock because it went 16 cents above my short price... on this stock, a 3x multiplier, I extended my normal 7-10 cent stop to 20 cents because of its volatility. With only 500 shares, that's a stop-loss of $100 with the potential to make much more. I exited the drop in the stock when it stalled, but then it dropped again to a low of $52.77 in the next candle, offering me up to 36 cents of gain. I took half at 18 cents. Before last Thursday, what I might have done was double down (add to the losing position) in anticipation of the reversal I thought would come.
And that is why it was so powerful a drug to me. I would win big when it worked. And, it worked much, much more often than it lost. That entry signal has a high correlation of success but when it doesn't work during a big trend day, it is a BIG loss because of all the shares you have in and the fact that the revesal didn't come. I write this mostly as a reminder to myself.

Now, as further evidence of it being a good (but not perfect) sign of reversal, take a look at the drop in FAS from 12:50 pm to 2:10 pm on a 5-min chart. A really nice down trend of $1.33. At 1:00 pm, there is a big downdraft candle accompanied by a large volume spike. That would be a sign to me that a change of direction would take place. If you were already in the stock, it might be where you would take off half, or more conservatively, exit altogether. While the next candle (1:05) is red, you can see the run-up to $53.11 in the price before it resumed its downtrend. You'll also note that after that 1:05 candle, the next three candles are range bound as the stock consolidated after the drop which began at 12:50pm. The stock then broke down out of this brief consolidation to $52.32 with another volume spike at the end, albeit a shorter one than 25 minutes before. What did the stock do after this smaller but notable spike? It reversed direction over the next 3 candles, a 40 cent pop. - Momentum, retrace, consolidation; momentum, retrace, consolidation.

I should note that the volume spike as a probable indicator of pullback or reversal seems to apply only at the end of trends. Volume spikes at the beginning of runs may indicate a big trend move is coming in the same direction. Sometimes, it doesn't seem to mean anything. That's probability for you... and the reason I now am faithful about using stops. Lesson learned.

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1 for 1, a 100% win rate. Gain of $85 in .25 hours of paper-trading.

July 28th

Very little time to spend in the markets with the day-job being busy. Between appointments, I had a chance to stop at the office and get into the markets for about 15 minutes and took one trade in my live account, a long in SKF. Scalped $25 and scooted out to my next customer.

After completing my regular work day, I started watching the market again about 2:30pm. Then in my paper-trading account, my first trade went quite well, going long near the LOD around 2:35 pm. Indicator of potential reversal was the huge volume spike in the ETF at the 2:30 candle along with the overbought condition of the SPX and QQQQ in the same timeframe. On the five-min chart, I held through the tall 2:40 pm candle and into the 2:45 candle, selling when the 2:45 candle went red (the volume spiked during that 2:40 pm run-up candle). It started to re-trace so I decided I should grab and run with my 15 cent gain. Thereafter it did re-trace to within 4 cents of my entry but never did actually reach it before starting back up on a nice run. It would have been great to stay in but I couldn't pass up taking the winner.

The next two trades were stop outs and basically scratch trades. Both would have given a chance at gains had I stuck with the plan of exiting only on a stop-loss while in the initial candle. The second bail-out trade actually continued another 16 cents. There's a lesson... the problem is, I am still trying to formulate an exit strategy that will ensure long-term success. Call it "Road Under Construction." I should add here that after reading Scott Farnham's most recent post at www.fearand greedtrader.blogspot.com, I moved my QuoteTracker watch-list with its bid/ask quote boxes beside my 5-min chart and moved my 3-min chart out of the way. I was then watching all my stocks including the indices go green and red with the pulse of the market. It was quite fascinating and I felt it may have helped out. Not sure as yet, I have to continue to monitor it. I found myself skipping trades and just watching how the greens, reds, and blacks (stalled areas) behaved at critical points like S&R, and especially at places where changes of direction took place; reversals and pullbacks. An hour of watching it doesn't give me any clear sense of it's value but I am intrigued enough to keep watching. I liked what I saw as it brought some clarity to the movement on the chart. I checked and it appears neither QuoteTracker nor Interactive Brokers has an HOD/LOD list so a true reproduction of what Scott watches is not achievable with my current set-up. I know that ScottTrade has a scrolling HOD/LOD list but does not offer a filtering feature (at least it didn't when I had an account there and was using it last fall). As a side note, this ScottTrade list was a valued trading asset for the moderator and very effective trader at the old GOTS chat room. With Scott Farnham, that makes two successful day-traders who use an HOD/LOD list. I sense a trend... maybe an opportunity to go "long."

In the waning minutes of the session, I took a trade long with the feeling that the market might continue to divert from the mean causing SKF to pop as it reverted to mean (10 day sma). It did although it was sketchy... I held the trade as it touched the stop-out point a couple times before going my way. I sold for a small gain in the last minute of the day as the stock continued to climb beyond my exit. I had gone long at a good spot after the reversal, as it turns out.

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3 for 5 winners, a 60% win rate. Gain of $ 105; $25 in 15 mins of live trading and $80 in 1.5 hours of paper-trading.

July 27th

Ok, my first day trying to catch momentum in a bottle, so to speak. Didn't go as well as I had wanted. I did not add to losers today, although with so many manual stop outs, I sure had plenty of opportunities to do it. My average stop-loss was a shade over 7 cents so that seems ok. Largest stop loss was 10 cents. In a number of cases, I took tiny gains rather than letting it stop out and in virtually all of them, I was right to do so, preventing the inevitable stop-loss. On one stop-out that I remember, it turned out to be a pullback. I stopped it out, then it promptly turned back to trend and kept on going. That was a bit frustrating. I think the most frustrating thing is looking back at a terrific trend and knowing that I had managed to lose on it. But, as all of you know, it's not necessarily a trend while it's going on...only when it is done.
So, I was hoping to get a good start today but the market said no. I hooked into a good trade of 18 cents at 11:01 am through 11:11 am. That felt great and got the day back on track after a slower than necessary stop-out just prior. It was tough going from there with only one winner out of 6 until after 2:00 pm. I was looking at all the right things, it seemed. I was constantly asking myself, often out loud, "what is volume doing? Are the indices in my favor? Is price stalling here or is it just resting? Is that change of direction just a fake-out?" Etc. Talking to yourself does not help, as I found out. I hope this isn't coming across as defeatist, it's supposed to portray frustration. Some days, like today, I think the opportunity costs are too high and that I should be working on my business instead. Yet, I keep plugging along. Trading will have to yield to my day-job soon. I have been neglecting my work in favor of the markets and for a couple weeks really felt like I was on the right track... that is until last Thursday. Clearly, I have a long journey in front of me to learn the markets and I must work the day-job more than I have been. I have been taking the day-job for granted over the past two months in anticipation of making up the difference by trading for winners. I'm sure many of you have encountered the same thing in one form or another.
I wonder if I'm fooling myself by thinking that if I study enough FNG charts and map enough volume spikes off today's charts that I'll get the answer. I still have the notion that it is like cracking a safe; you try and try and try, then finally you get it!! You've stumbled on the combination! "There it was all the time, and now I've got it, " you would say to yourself in that glorious moment. After all, I and many of you are looking at the same things (for the most part) as the people who do this successfully; five-min candlesticks, charts of the indices, average day range, volume bars, etc. What are we missing if we see the exact same picture as them? Is it one of those optical illusion pictures where you can either see the Old Hag or the Pretty Lass depending on your perspective? If so, I'm ready to see the pretty lass. That Old Hag is making me sick! Ha! Ha!
-
Mrs. Bluecollar and I were having this discussion on the way home from an errand about the apparent "mystery" or "hidden secret" and I thought I would vent it to the blog.
I just seem to have a hundred questions today and no answers... Without a clear sense of direction, I wonder how long it will take? I think of all those people who have been lost in the Maine woods over the years and died wandering in circles, never knowing that they were only a few hundred yards from the logging road that would have led them to safety.
My kingdom for a compass...
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7 for 14 winners, a 50% win rate. Loss of $181 in 6.5 hours of paper-trading. Average loss was $77.29. Average gain was $51.43.

Trading the Tape- Another Example

I posted about this a number of weeks ago but want to resurrect it here:

Full story written by Imogen Rose-Smith and discovered on Timmay's site, it covers the story of Merritt Graves, a young hedge fund manager. I have pulled out some details pertinent to this topic...

"...The 23-year-old, who tracks nearly 100 trading positions on his phone’s Web browser, was monitoring the stock market, which by that time had been open for more than three hours.

This college student has an unlikely full-time job: He runs a $4.7 million long-short equity hedge fund.

In themselves, the numbers put up by Caelum Capital, as Graves’s five-person firm is known, are impressive. For a fund piloted by a kid who has no professional investment training and who only recently moved out of the dorms, they are uncanny. Last year, when the average equity hedge fund manager was down 26.4 percent, according to Chicago-based Hedge Fund Research, Graves was up 40.6 percent. In 2007 he returned 174.1 percent, after more than tripling his money the previous year — and nearly doubling it the year before that.

Graves called the subprime mortgage crisis and its impact as early as 2005. He also predicted the severe stresses that hit the banking sector in 2008.

As Caelum’s sole investment professional, Graves has achieved this remarkable record not by shooting for the moon but by maintaining tight risk controls. In addition to holding a diversified portfolio of 80 to 100 stocks, he limits each position to 0.5 to 8 percent of the total and won’t borrow more than 2-to-1 overnight. His fund’s net market exposure — his longs minus his shorts — has typically ranged from –30 percent to 30 percent of the portfolio’s total market value. As a result he has delivered far less volatility on the downside than either the Standard & Poor’s 500 index or the Nasdaq composite index, and his fund’s returns are relatively independent of both benchmarks.

“It has been a long road of constantly getting more disciplined,” says Graves, sounding more like a grizzled money manager than an undergrad who still eats in a college cafeteria.

Monitoring the markets while attending class is something that Graves has been doing since junior high school, when he learned formative lessons about risk. At age 14 he convinced his parents to help him open an account at discount brokerage Ameritrade — and twice lost all his savings from odd jobs as the technology bubble collapsed. In 2002, at age 17, he borrowed $7,000 from a local day trader he had befriended and lost it all again.
“It hurt so much worse losing someone else’s money,” recalls Graves.

After taking a year off from trading to study the markets, the then-teen summoned the courage to borrow another $7,000 from the same individual, who agreed to give him a shot at making up the prior loss in exchange for half of any additional trading profits.

It proved to be a smart bet. Within a year Graves had turned the $7,000 into $340,000, netting a personal profit of $100,000 after taxes. His winning streak continued as he began studies at the University of Iowa, spent a year abroad at Australian National University and took 12 months off to live in Berkeley, California, to focus on his trading before continuing his education at Pomona. During that three-and-a-half-year period, he turned the $100,000 into $2.8 million, which he used to seed Caelum Capital in October 2007.

Arguably Graves’s greatest strength, developed through trial and error, is his ability to interpret buy and sell signals from security-price movements — in short, to “read the tape,” a skill that is tough to teach and that he shares with hedge fund stars who are more than twice his age, like SAC Capital founder Steven Cohen and Paul Tudor Jones II of Tudor Investment Corp.

“Intuitively, I started to feel what the market was doing,” says Graves, reflecting on his evolution as a trader. “Things started to become more visceral.”
...Merritt Graves has always been entrepreneurial. In the fourth grade he baked cookies that he sold in the teacher’s lounge until the school district shut him down (he even had his own business cards printed up). Later he ran lawn-mowing and snow-shoveling businesses and earned money cutting down Christmas trees.

In eighth grade, while watching business network CNBC, he decided to invest his savings in the stock market, convincing his parents to open the Ameritrade account...

...“I thought investing looked cool,” he says.

It was the summer of 2000, and the dot-com boom was going bust. Graves had invested his entire $500 in savings in a handful of high-flying technology companies that ended up going bankrupt. He lost everything.

Undeterred, Graves raised a new $1,000 stake by flipping burgers and running a pressure-washing business. He bought more tech stocks. He lost everything again.

By then, Graves was attending Iowa City High School, where he was a popular and engaging student with wide-ranging interests. Daphne Foreman, his ninth-grade English teacher, says Graves especially enjoyed Fahrenheit 451 , Ray Bradbury’s portrayal of a dystopia where censorship rules, identifying with the free-thinking and insatiably curious Clarisse McClellan, one of the main characters.

“Merritt was obviously concerned about things most kids weren’t,” says Foreman. “He had a presence about him.”

During his sophomore year Graves raised $7,000 from Jeff Larson, a local day trader and entrepreneur he befriended who must have sensed something special in the teen (Larson did not return phone calls seeking comment). Graves used that money, along with $2,000 of his cash, to get back into the market, this time trading small- and microcap stocks.

The third time wasn’t the charm. That spring, Foreman says, Graves began looking more and more tired, missing school entirely some days. He lost everything again. “I advised him several times to back away,” says his father.

Instead, in his quiet, determined way, the younger Graves began to monitor the market rather than trade it, teaching himself to sense where stocks were moving by watching the tape. He read about investing and behavioral finance, and identified a major weakness in his trading: a tendency to double down on declining positions in an attempt to make his money back quickly and end the pain of losses.
By July 2003 Graves was ready to try again. With the second $7,000 stake from Larson, he focused his attention on stocks with larger market capitalizations."

Trading the Tape - Part Four

Linda Raschke, continued...

Responses

"The study of responses ... is an almost unerring guide to the technical position of the market."
- Rollo Tape (Richard Wyckoff), 1910

The second main trick to monitoring price action is to watch for the market's response to a particular condition ... in other words, anticipating a particular behavior. For example, if the market has been at a very low volatility point and just begins breaking out of it's particular trading range, one might anticipate that the price would begin to accelerate in an impulsive manner and not run into immediate resistance. Or, on a directional play, if the price is moving in an impulsive manner in a trending market and then pauses to catch its breath on a mild reaction, one would expect it then to continue on in the direction of the trend. When there is a particular behavior to anticipate, it is easier to watch the price to see if it acts according to one's expectations.

Is the market failing to break on bad news? Is it finding support after a series of advances? Does it run into an invisible overhead wall and sharply back off, implying strong resistance? These are market responses to certain conditions. Tape reading is like playing a tennis game and watching to see how your opponent hits the ball back.

Part of studying price behavior and gaining experience as a trader is gradually learning what actions to anticipate. Then you must learn what the market's most probable response or outcome should be. It will always be easier to anticipate an event or response which happens 70% of the time than to be looking for that which happens only 30% of the time.

However, it can also be a profitable strategy to recognize when a given signal or expected response is failing. Sometimes a failed signal can be more profitable than the normal expected response. For example, a classic failed response might be a scenario wherein price was consolidating in a pattern of higher lows and lower highs - a classic triangle pattern. One would expect a breakout from a chart formation to have some follow-through. However, if price only penetrates the lows by a small amount and then turns upward, picking up volume and momentum as it goes, and comes out the upside, a very significant reversal has probably occurred and there may be much more price advance to unfold.

One last trick to watching price action is to learn to think in terms of "handles," or levels. Think of the S&P's as reaching for the "1110" handle, or the "low 1060's" as a level. Each ten points is a defined level. Use big round numbers as reference points for levels. It doesn't mean that you are placing orders at those numbers. It is just a simple way of organizing data that professional traders practice subconsciously.

Pivot Points

An astute trader will always have the previous day's close in his head. He also knows the previous day's high and low (prices he would have liked to have bought and sold but probably didn't). He also knows the opening price, for that tells if the buyers or sellers are in control for the day.

The previous day's high and low and today's open have very strong psychological implications and are the most important "pivot points" to recognize. By concentrating on price action near these points, we can eliminate much of the hard work in tape reading. Many times the market will let us know right away if this is going to be an area of support or resistance.

The previous day's high and low tend to overlap in congestion areas. Look to exit profitable trades immediately at these points in sideways markets. In trending markets, the price will run through these points a bit before pausing. When the market is strongly trending, the opening price becomes the most important.

If we are watching a high, low, or opening price as a pivot point, we are watching to see whether there is any impulsive price action as the market approaches the point or moves further away from it. What is "impulsive action?" I like to call it a "whoosh." The market moves rapidly as if just coming to life for the first time. It is usually a series of ticks in one direction without a tick in the opposite direction. The market is tipping its hand. A sequence like this tends to consolidate or pause a bit before being followed by more impulsive action. This is quite easy to see in a market like the S&P's if you look on a short-term time frame. If we quantify these "whooshes," which we can do in several ways, we will see that the market tends to have continuation moves at least 2/3's of the time. Not bad for arriving at a "positive expectation" simply by following price action.

In conclusion, tape reading is not watching every trade that passes by (a monotonous task) but rather keeping an eye out for unusual impulsive action, unusual volume, or just observing the way the price trades at significant levels. Each price swing has forecasting value as to what the next most immediate move should be. We then follow the price action to see if that move plays out.

Tape reading is at the heart of swing trading. When looking for short-term moves, price-based derivative indicators will be too late to be of value. Ultimately, traders should feel a great sense of freedom when they can rely on simple charts to formulate a game plan or a conceptual roadmap in their heads - and the movement on the tape to tell them their game plan is correct."

Reading the Tape - Part Three

And from Traders Log, Linda Raschke, a well-known and well respected educator on stock trading, offers this on the subject. Note that she mentions tape reading in the context of swing trading, not intra-day trading:

Tape Reading
by Linda Bradford Raschke

Sometimes it is nice to reexamine a simple concept when there appears to be overwhelming volatility in the markets. Mechanical systems and patterns are helpful and even necessary for the structure they impose in organizing data, but even Richard Dennis in his original course discussed ways to "anticipate" entry signals, exit trades early, and filter out "bad" trades.

Learn to follow the market's price action and read the signals it gives. This can become a strict discipline in itself and the result will be greater confidence that a trade is or is not working.

Tape Reading

"Trading technique is simply the ability, through study, observation, and experience, to recognize the signals in each of the several phases of market movement."
- George Douglas Taylor

Tape reading long ago referred to the practice of studying an old-fashioned ticker tape and monitoring prices, volume, and fluctuations in order to predict the immediate trend. (It does not mean you have to have the ability to read the prices scrolling across the bottom of the screen on CNBC!) Tape reading is nothing more than monitoring the current price action and asking: Is the price going up or down right now? It has nothing to do with technical analysis and everything to do with keeping an open mind.

Even the most novice observer has the ability to see that prices are moving higher or lower at any particular moment or, for that matter, when prices seem to be going nowhere or sideways. (Markets do not always have to be going somewhere!) It is also fairly easy to watch a price go up and then tell when it stops going up - even if it turns out to be only a momentary pause.

I've known hundreds of professional traders throughout my career. I don't want to disappoint you, but I know of only two who where able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA's who are running a money-management program with "OPM" - other people's money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment - even if just to move a stop up or down.

If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, "The only truth is the current PRICE." Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases.

Watching price action can actually be very confusing if you go about it like a ship without her sails up in an ocean squall. You will get tossed back and forth with no sense of direction and no sense of purpose. There are two main tricks to monitoring price action. The first is to watch the price relative to another "reference point." This is why many traders use a "pivot point" - and it works! It is the easiest way to tell if the market is moving closer to or further away from a particular point. This is also why it is often easier to get a "feel" for the market once you put a position on - your "reference" point tends to be your entry price.

Some reference points, such as a swing high or the day's opening price, will have much more significance than those points involving some type of calculation. (Some numbers might have special meaning for those who calculate them, and who am I to argue if they work.) I like to concentrate on pivot points that the whole market can see. To sum up so far, when watching price, we want to know the following: how fast, how far, and in which direction. It takes two points to measure these things. One will always be the current price, the other a pivot point.

* Do not watch price for the sake of watching price. Watch price with the intent to do something or to anticipate a certain response!

Reading the Tape - Part Two

From SMB Capital, I got this:

"In a recent blog Dr. Steenbarger talked about a vital skill for the intraday trader, reading the tape. Dr. Steenbarger, aka the godfather of modern trading psychology, wrote: “My experience is that an understanding of (and ability to read) order flow is one important factor that separates the older, successful generation of daytraders from the newbies who only know simple chart patterns and indicator readings.” I am one from this older generation of intraday traders. And I thought this old-timer could share his thoughts on reading the tape and how it impacts the developing intraday trader.

In the past I have disappointingly heard developing traders state,”I am just going to focus on the charts going forward. I can’t read the tape.” I have heard this uttered on numerous occasions. Not one of these individuals became successful traders.

Recently, our newest class has moved from the first part of our training to the second part, Trader Development. After the Close we answered their questions and discussed what was important on Day 6 of their live trading career. (Oh to be young again. What was I doing on Day 6 of my trading career?) And one of our promising traders discussed a trailing stop for a MS trade today. Trailing stop? My impression was this talented new trader had trouble reading the tape so was experimenting with these trailing stops to minimize this weakness. This is not the right approach. I counseled to continue working on the skill of reading the tape and to sell the stock on the offer when the tape showed weakness. And I did so because this is what an older generation intraday trader, like myself, does.

And I offered an analogy about not learning how to read the tape. To me not learning this skill is like a basketball player not working on their free throws. This athlete just decides to keep clanging their free throws and give up some easy points. This same new trader offered a better analogy. (Hey we hire smart new traders. Obviously this analogy was much better than mine. In the future I will take creative license to just use his idea as my own. After all what is the point of being a partner if you can’t steal the analogies from your trainees.) Back to this better analogy from the youngster who just started trading. Not developing this skill is like the amateur golfer hitting only irons during his round because he never learns to hit driver.
I like that.
Still not convinced? Let’s bring is some famous market players for further persuasion.
Exhibit A: Steve Cohen of SAC Capital: “…everything I do today has its roots in those early tape-reading experiences.”
Exhibit B: Jesse Livermore: ”A battle goes on in the stock market and the tape is your telescope. You can depend upon it seven out of ten cases.”
Exhibit C: Linda Rascheke: “If you can learn to follow the price action, you will be two steps ahead of the game….”
Exhibit D: Paul Tudor Jones: “…..at the end of the day, I am a slave to the tape and proud of it.”

So learn to read the tape. It will help you become a consistently profitable trader. It will give you an edge over other intraday traders."

Reading the Tape - Part One

Reading the Tape:

Before January of this year, I did not know such a thing existed. It was then that I was directed to Fear and Greed Day Trader. I read his blog for a number of days and it was an awakening. I couldn't believe that such a skill was possible. It was, to be redundant, unbelievable. I was very new to day-trading at that time, having only tried it for a few weeks last October. My very limited experience consisted of trying to catch on to other peoples' stock calls in a chat room. I thought day-trading was all about deep background research; technicals and fundamentals, waiting for that special time in a day where everything came together to produce an opportunity to get in. I wasn't even thinking about exits back then. In that context, it was easy to see how I was dumbstruck to find that it was possible to trade with no fundamental analysis, no study of fibonacci or elliot wave or MACD, etc. Possible to trade a significant percentage of the ups and downs of the market intra-day. It was a feast for a starving man. To that point, I had been searching for a method, wandering from position trading to swing trading to trading pump and dump schemes on low-volume, micro-cap stocks to just focusing on catching huge breakouts and breakdowns of micro-cap stocks. I was wandering the desert, so to speak. But, after FNG, I knew my destination, I had a goal. At that time, I didn't even know this skill had a name. Only more recently have I come to know it as "Reading the Tape" or "Trading the Tape." I have found that it is not like some mysterious, undiscovered Tibetan Art form kept in a mountain top monastery. While it is an art form, it is widely known inside trading circles and is really at the source of many successful trading strategies and practiced daily all over the world. As I discover more information on it, I still consider FNG as the gold mine because of his simple, uncluttered approach to this art. Further, his is the only deep-study reference source that I know of which is faithfully updated, intra-day based and exclusively momentum focused, and made available to us at no charge. He has blogged on his disdain of those who charge money for their information, saying (paraphrase)"...dont they make enough money trading?" To the extent that what I put on this blog has any value to its readers, I am committed to never charging admission or putting up ads.
Here are some excerpts from material I found after doing a google search today of "read the tape stock trading." I am breaking it into four successive posts because of size. From time to time, I will continue to post other reference material, being faithful to crediting author and source.

July 24th - Morning Trade

FAS landed the big blow to me yesterday but I got in my own lick this morning. Picked up a $204 winner after getting stopped out just prior. Also called that big move down on FAS after the open but hesitated on pulling the trigger. One thing of note and which leaves me feeling sour is that big drop in FAS earlier, my trade from yesterday would have been "in the money" if I had held! Big moves always give a nice reverse eventually, the question is what is your appetite for pain in the interim? Am I disappointed at selling last night and thinking I SHOULD have held it overnight? Hell no! It was the prudent decision based on my account size. I SHOULDN'T have been in the trade to begin with. Lesson learned. One important detail that I don't remember posting about chasing yesterdays run up in FAS is that I had more $ in my account to chase it... I couldn't do it because FAS no longer had shares available to short on IB. No matter. It was right to get out. The markets could very easily have been up this morning and I could possibly be getting margin calls and forced selling (depending on how high it was hypothetically up)... I'll say again, a reversal can sometimes take a while to come to you.

UPDATE: I did continue trading but in my paper-trade account after this activity in my live account. The results were for a loss because of early difficulty with higher stop-losses than I wanted. I had to acclimate to the speed of FAS as it jumped through my stops. I finished the day paper-trading with a long string of winners trading in the PROPER way.

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1 for 2 winners, a 50% win rate. Gain of $114 in .75 hours of trading

July 23rd

I guess yesterday was a premonition of things to come. I took a really tough loss today trying to average in/ add to losers while playing for a reversal on FAS. Got cocky and thought I was going to beat it this time and I didn't. Like I've posted many times over the past months since I started, the problem with adding to losers is that it only takes one big day in a single direction and you'll get dropped on your head... reversals just don't come on days like today, only small pullbacks. That happened to me today when the reversal I was playing for did not come.

I'm not even for a second considering quitting the markets. But I have given my word to Mrs. Bluecollar that I will never trade that way again. And if one thing is true, I am a man who keeps his word to others. No more adding to losers. My pledge to her is that if I do it again, I WILL stop trading. I'm going to have to sharpen my skills and be prepared for taking stop losses and poorer win rates. But, I simply can't afford to do this again. It's tougher on my psyche than my account. This is not a killer loss financially in the big picture. But, it does sting my ego and my confidence, which is good for me in the long run, I think.

After all the carping about not adding to losers, doing the "trading bootcamp" last month, posting stories of how other traders blew out their accounts by trading this way, and all the times I've read Scott Farnham say how stupid it is, I feel like a fool for having to learn the hard way. Sometimes wisdom is hard to come by.

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8 for 22, a 36 % win rate. Loss of $3789 in 6 hours of live trading.

July 22nd

When pro football players get back to the NFL after time away and are asked what the biggest challenge was when coming back, they often remark that it is adapting to the speed of the game. That is how I felt today as I got a full day to trade for the first time in a while. I made some early gains in my old buddy, SKF, going 9 for 9 winners and up $144 from the open until about 11:20 am. At that point, I noticed from my watch list that FAS was giving a much better day-range over the same time frames as SKF. So, I switched to FAS. That's where the "Speed of the Game" hit me. Back in March, when I was early into paper-trading, I would inevitably try to play reversals without any feel for how SKF moved, especially in that ultra-volatile trade environment (You all remember March, right?). I would get punished averaging in much too soon, given the amount of day-range SKF had at that time. Today, without really thinking about it, I got long FAS and found myself in the same environment as SKF in March. Why? As I and everyone knows, it is a 3x trading vehicle and therefore, moves 33% faster than the 2x that is SKF. I was not prepared for the extra speed, however. I found myself down, nearly bumping up against my margin limit. All the while, I knew this thing was really going to crack eventually. So I held, and held some more. Most of the afternoon I held, then I decided that I would lighten up some. I took four losses and held the remainder of my position. A bit after 3:00 pm, FAS did come down and I scaled out of the rest of my position but not enough to offset the four losses from earlier. I was in the hole by roughly -$70. The bummer is that I exited too early on those remaining shares... I could have taken a very nice gain even after those four scale-out losses, had I held a bit longer.

I continued to experiment and try to get a feel for FAS by getting long on four more trades in it; collecting winners in each and adding $113 to my account, putting me back in the "black" for the day. I then went back to SKF to close out the day, adding $25 with two more winners.

It was an exciting and nerve-wracking day, that's for sure. And, as is often the case, lack of patience hurt my results.

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24 for 28, an 86% success rate. Gain of $67 in 6.5 hours of live trading.

July 21st

It was about 2:00 pm before I could get into the markets after day-job activities. I was quite non-chalant about my trading today... I couldn't get the theme song to "The Brady Bunch" out of my head and I found myself singing it all the time I was watching my trades! Very strange... really.

Anyway, with my reduced position size of 200 shares per buy-in, I continue to be undisciplined; fading big moves in anticipation of reversals and not cutting losers short with stops. I haven't resigned myself to the fact that this is how I am destined to trade but for now, I go with it.

Tried to fade that last move down in SKF at EOD looking for a last-second pop but it didn't work... I got out with only two seconds left; closing the session for my only loser of the day; a whopping $1.98 loss! Ha. There goes that Coca-Cola I was going to buy tomorrow (Not the stock, the beverage).

I still find that fading strong market emotion is a very high-probability winning trade; triggered by big price moves coupled with big volume and strong diversion from the mean. Today, I was just a bit too early on both multi-trade positions, leaving me to add to losers to keep the trades viable. Patient entries are really the difference between having to add to a loser and catching a reversal at the right time when choosing to play for reversals. They all reverse at some point... patience, patience patience.

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7 for 8, an 88% win rate. Gain of $70 in 2 hours of live trading.

July 20th - No Trades

No trades today, day-job finished too late to have a try at the markets.

The day-job gave a nice return today so it worked out fine but I would much rather have been in the markets just the same.

Weekly Stats - July 13 to 17th

I worked in some trading when I could this week, faced with the passing of our dog and increased day-job activity. I was able to get into the market for 11.25 hours of the 32.50 available; about 35%. I reduced my position size from 300 shares to 200 shares, initially because I was trading Potash, a relatively expensive stock for me, but decided I liked the smaller position size so I'll stick with it for a while. Eventually, I will end up trading in 1000 share lots. I consider that a benchmark for me so I now refer to 200-share trades as 1/5 of a position. Yes, I am still in practice mode even though I mostly trade my live account. I see big-boy trading in my future, though!
I was a bit sloppy, adding to losing positions on a number of occasions. I will eventually beat this bad habit. I'm sure of it. Discipline, discipline.
My success rate was over 90% this week, a testament to the fact that I was averaging in on losers instead of setting stops. As such, I traded more hours this week compared to last week yet made less money even with a much better win rate. There's the lesson about adding to losers. More show, less "go." (That is: Nice stats, Less take-home). Adding to losers means you are fading in on the wrong side of a winning move and when the reversal takes place (if it takes place in time), the gains are muted by the averaged cost basis.
Smart trading and the real money is in taking the losses on stop-outs and eventually catching a decent percentage of a nice move to offset them. Not to mention, preventing exposure to the disastrous big move from which you cannot recover.
I also need to formulate an exit plan that makes sense. For so long, I have worked on entries and ignored exits. I get out of far too many of my trades too soon. I am tired of leaving money on the table. It is not as easy as flipping a switch to do it, but it is my goal to take a higher percentage of the moves I am in. After all, I cannot live on $300- $500 per week... $300 to $500 per day is more to my liking! Ha!
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30 for 33, a 91% win rate. Gain of $357 in 11.25 hours of live trading this week. Average of $31.73 per hour.

July 17th

Back to the markets today after spending the morning on the day-job. I signed into IB about 1:15pm. Played MTG, a lower priced stock, scaling in for a 4/5 position (800 shares) then scaling out when it appeared to not drop as much as I'd hoped. Took a very small profit then moved on, shopping for a better mover.

Got ERX from my IB scans and shorted 2/5 of a position (400 shares) at an average price of $29.71, right at the HOD. (see chart above) -- As has been the case for what seems like an eternity (don't mind the hyperbole), I exited too soon with no real reason, covering at an average price of $29.645 for a small $22 gain. The stock continued to drop through the afternoon and hit a LOD at $28.97 two hours later about 3:35 pm. Had I held, I would have had up to a $296 gain. I took only 7.5% of the move available.

I then traded MELI twice before going back to ERX for three trades. Finally, as the markets approached the close, I found my old friend SKF making some good moves so I scalped a winner on that with a 1/5th position (200 shares). I had missed the two best moves already in SKF by the time I found it (3:30-3:35 and 3:40-3:45 pm candles, 5-min chart).

I'll take my winners, small though they may be... a gain is a gain is a gain.

Hope all of you had a good day; financially or educationally.

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12 for 12 winners, a 100% win rate. Gain of $108 in 2.75 hours of live trading.

July 16th

One trade, shorted SRS at the HOD and sold much too soon, as the chart illustrates. But, we had other things to attend to.

We had to have our 14 year old Labrador "Elsie" put to sleep. Now that the veterinarian has left, we've decided to spend the rest of the day out. There's always another trade tomorrow... a good dog, now that is something to celebrate.

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1 for 1, 100% win rate. Gain of $12 in a half-hour of live trading.

July 15th

Once again, day-job kept me away from the computer for most of the morning. A couple of good trades today and some where I exited too soon; an example is the POT trade listed on the chart. I shorted it only 14 cents off the HOD but covered when it appeared to have stalled, leaving another 50 cents on the table.

Gains are smaller today as I have reduced my position size to 200 shares rather than the 300 I have been trading recently. Other than the first trade today, all are 200 shares. Ultimately, my goal is to trade 1000 shares at a time, so I consider the current 200-300 shares a warm-up for later.

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7 for 7, a 100% success rate. Gain of $140 in 4.5 hours of live trading.

July 14th

Day-job and 3 hours of sleep last night left me listless once I was able to get to the computer to trade. With a significant lack of focus, I was cautious about taking trades and saw some decent ones go by; one in particular in POT. That's ok, I was really in a learning mode today and ideally, should have been in my paper-trading account. Today was a gainer and so I'm pleased to have my profit, small though it is. Not much analysis or review today. It was one of those days...
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4 for 4, 100% win rate. Gain of $44 in 1.75 hours of live trading.

July 13th

Didn't get much time in front of the markets with day-job duties and my sister in town to visit. Traded POT just before lunch and at the close.

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6 for 9, 67% win rate. Gain of $53 in 1.75 hours of live trading.

Weekly Stats - July 6 to 10th

My first week of trading only my live account without mixing in some paper-trading. Didn't trade on the 9th because day-job kept me away. Only one trade on the 8th because of day-job and not feeling well. I traded 10.5 hours of the 32.5 available in the week.
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21 for 35 winners, a 60% win rate. Gain of $504 in 10.5 hours of live trading. Average of $48 per hour.

More Words of Wisdom

From Trading in the Zone, by Mark Douglas;

Page 11:
"I'm sure there isn't one trader reading this book who hasn't gotten into trades too soon--before the market has actually generated a signal, or too late--long after the market has generated a signal. What trader hasn't convinced himself not to take a loss and, as a result, had it turn into a bigger one; or got out of winning trades too soon; or found himself in winning trades but didn't take any profits at all, and then let the trades turn into losers; or moved stop-losses closer to his entry point, only to get stopped out and have the market go back in his direction? These are but a few of the many errors traders perpetuate upon themselves time and time again.
These are not market generated errors."

"I don't think I could put the difference between the consistent winners and everyone else more simply than this: The best traders aren't afraid. They aren't afraid because they have developed attitudes that give them the greatest degree of mental flexibllity to flow in and out of trades based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless."

Page 12:
"Ninety-five percent of the trading errors you are likely to make--causing the money to just evaporate before your eyes--will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears."

Page14:
"Confidence and fear are contradictory states of mind that both stem from our beliefs and attitudes. To be confident, functioning in an environment where you can easily lose more than you intend to risk, requires absolute trust until you have trained your mind to override your natural inclination to think in ways that are counterproductive to being a consistently successful trader. Learning how to analyze the market's behavior is simply not the appropriate training."

Page 36:
"Even though you cannot force or will yourself into a zone, you can set up the kind of mental conditions that are most conducive to experiencing "the zone," by developing a positive winning attitude. I define a positive winning attutude as expecting a positive result from your efforts, with an acceptance that whatever results you get are a perfect reflection of your level of development and what you need to learn to do better."

Photos

I love woodworking and cabinet making but don't get to do it as much as I once did, now that I spend so much time with trading. These are a couple of my projects: our kitchen base cabinets done from scratch in American Cherry, and our fireplace mantel, done in painted Poplar and American Cherry.

Me taking a break on the Kancamangus Highway, White Mountains, New Hampshire. The bike is my Harley FLSTC, Heritage Softail Classic.

Riding is how I clear my head. It works wonders and satisfies my appetite for "danger," when I'm not clicking buy and sell, that is.

July 10th - Pt 2

Best real-money trading day for me to date.

Here on the chart I highlight the PERFECT trade of the day for me that I didn't take. I just watched it. This was my ultimate set-up and I just sat there numbly! Ha. Starting at 3:24pm ( right chart is the 3-min), POT was a significant distance from the mean, was putting up high volume at an increasing rate, and was showing a stalled price in the candle. That was an absolute SCREAMING indication of reversal. The tale of the tape: low of $84.22 and a high of $85.53 about 12 minutes later. Total of $1.31 per share available.

That missed trade is the difference between doing this as a hobby and doing it for a living.

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10 for 18, a 56% win rate. Gain of $321 in 6.5 hours of live trading.

July 10th

So far, some very good ideas, some good trades, and some frustration. On the HES chart, I had a decent entry long at 11:14 am. The stop was set 10 cents below it. The price dropped to 11 cents below my entry... I stopped it out, then it promptly went up on a 41 cent run. Incredibly frustrating. I stopped it at the bottom, then it made the move I had anticipated.

Since then, I went long on HES, stopped it at breakeven (-3.00 loss), then it went up and is still climbing now. I'd be up 20 cents had I not gotten out. This sucks... sometimes my frustration gets the better of my optimism.

I'm still up $53. I may switch to my paper-trade account until I cool down and get level headed again. We'll see...

July 9th

No trades today. A very VERY long day with the Day-Job. Have I mentioned lately how much I hate my Day-Job?

July 8th - Pt 1

Just got to the market after a day job and found SKF poppin'.

Saw a consolidation area pushing but not breaking through resistance so I waited for it to get back to the top of the consolidation channel and went short, ready to reverse the trade in case it went against me by breaking out. It didn't, rather it went just as I thought it might and I picked up 16 cents. Out way too soon (see chart above illustrating my entry and exit, as well as the magenta line which is my indication of a premature exit) as the move went down to 48.67 at 12:51 pm, briefly pulled back and is still dropping now. More lost opportunity from bailing too early... but a profitable trade just the same. I'm not feeling too well so I may scrub the afternoon and head to bed. Tomorrow has a busy day job and I want to try to be up for it. SKF still dropping... wow did I leave some serious $ on the table... by my count right now, I took $45 from a trade that could have given me up to $426.

As I edit this post for spelling and syntax (I don't always bother to do this, btw!) after publishing it, that trade I was in is still testing the low of the move. Wow, what a nice entry and what a pathetic follow-through on my part. I surely need practice with my exits.

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Addendum, July 9th: I never did get back to trading. Just didn't feel up to it. Too bad, SKF was moving nicely with lots of opportunity yesterday. In any event, I just wanted to update where my one trade would have gone had I held it to its reversal of direction. It was dropping nicely after I sold it and while I was updating the blog. My short entry was at $49.34 and the bottom of the move was at $47.59, a $1.75 move. Based on the 300 shares I traded, the move would have given me up to a $525 gain. I took $45; only 8.5% of what I had available to me. Again, my trade was never in danger because the share price never approached my entry price.

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1 for 1, 100% win rate. Gain of $45 in 30 minutes of live trading. Stop engaged but not tested.

July 7th

Not a bad day in trading the SKF and OIH although it was a day where I went 4 for 7 and lost money in SKF but went 4 for 5 in OIH and made a profit. I try to be an optimist so I look at my trades in SKF as acceptable even with a loss because I had the best entry of the day in it at 1:31 pm. A long trade at $44.67, I ended up selling it Much, Much too soon. I got in to the markets around 1:00pm and tracked it on the last part of that leg down which started at 12:40pm. After a stupid play where I did average down a bit on my first two trades, I got out of it with an $18 loss while flogging myself the whole way! I was feeling the shift in momentum and bought long at the aforementioned $44.67, only 10 cents off the the lowest point from 10:00 am through the day's end. As I mentioned earlier, it was my best entry of the day... but wasted when I wasn't willing to let it go to the stop. I bailed with a tiny gain of $12. In the next candle, it did drop to 4 cents below my buy price but did not touch my stop. had I held the trade with discipline (until stop-out), I would have been in on the run which topped out at $46.26 at close; a rise of $1.59 per share from my cost basis; gain of up to $477. Would I realistically have held until EOD if I were a good trader? Not very likely. A good trader would have sold the retracement starting at 3:05 pm then played the last leg up seperately. Still, I like the fact that I had a line on one of the best moves of the day after a terrific entry. These are encouraging signs, in my opinion. I simply have to trust my gut... AND, develop an exit plan that follows the model of trading which I have chosen. Namely, one which fits momentum changes.

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In OIH, it was more of the same. My first three trades were decent entries but exits too early with small profit. The fourth trade was a stop out (10 cent stop that went a bit over). The fifth trade was a good entry and a good exit, given the momentum at EOD. I was playing long when the sentiment was short so I was happy to get that last gain.

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8 for 12 winners, a 67 % win rate. Gain of $111 in 3 hours of live trading. Added to one loser on the first trade of the day but held stops afterward.

July 6th Mid-day

Good trades, lost opportunity...

Mrs. Blue Collar and I are both off work today and enjoying the Sunshine finally in Northern New England.

In a short lunch-break while finishing an exterior window trim replacement project, I got a few trades in on OIH. After two stop outs playing for a reversal, I finally did the right thing and go with the rising stock. Picked up 12 cents then sensed a reversal so I sold it. The stock did top out and I took it short about 2 minutes later and got an excellent entry. I covered about 5 minutes later for a 16 cent gain. I then went back up on my porch roof to complete my project and put away my tools. Got back down to the computer and darn it but the stock had fallen, and fallen some more; 82 more cents down from where I got out. I got only 15% of the move. Once again... haste costs me money. The trade was never threatened by a retracement/pullback. Mrs. Blue Collar and I are headed out for a motorcycle ride so I don't expect any more trades on the day.

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2 for 4 trades, 50% win rate. Gain of $27 in 30 minutes of live trading.

I'm not alone...

I found this article about young hedge-fund entrepreneur Merritt Graves at Timmay's site. Written by Imogen Rose-Smith, it chronicles the development of young Mr. Graves into a full-fledged hedge-fund player. I highly recommend reading it if only for inspiration.
From the article, I was impressed with a couple things:

1) His persistence, even after losing all his own money twice as well as someone else's money on his third try.
The old adage that Quitters Never Win is so true.

2) His presence of mind after his three set-backs to step back and "...monitor the market rather than trade it, teaching himself to sense where stocks were moving by watching the tape. He read about investing and behavioral finance..."

In the same vein, I give you this from Scott Farnham's Trading Manifesto:
"I started in 2002 and watched the market, learning my craft for 2 years before I actually traded. I thought it was important to see what happened in all types of markets, up, down and sideways before I committed myself into this business."


3) "... (He)...identifed a major weakness in his trading: a tendency to double down on declining positions in an attempt to make his money back quickly and end the pain of losses."

Anyone who has been reading this blog since its inception, knows my battle with this very problem. It is a horrible habit to fall into. Like most risky/dangerous behavior, it produces enough of a thrill (or, success) that it holds onto you, or should I say, you hold onto it; despite the agony it causes you, or should I say, you cause yourself.

Good trading to you all. Battle your demons with every bit of energy within you.

American Independence Day Thoughts...

"When the government has more power than the people, that's TYRANNY. when the people have more power than the government, that's LIBERTY." - Thomas Jefferson


"America is too great for small dreams." -Ronald Reagan


"I hope we have once again reminded people that man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts. " -Ronald Reagan

"Those who would give up essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety." - Benjamin Franklin

In response to concern over the world's view of the United States regarding its operations abroad:
"You have enemies? Good! That means you have stood up for something, sometime in your life." - Winston Churchill

"I know not what course others may take; but as for me, give me liberty or give me death!"
- Patrick Henry

Apprapot to the recent nomination of Judge Sotomayor as Assoc. Justice to the Supreme Court and her penchant for judicial activism:
" They define a republic to be a government of laws, and not of men." - John Adams


"Americans need never fear their government because of the advantage of being armed, which the Americans possess over the people of almost every other nation." - James Madison


God Bless America and thank you to all who have served in defense of It.

July 2nd

I decided to trade my live account today and was doing ok until I got caught on the wrong side of that last leg down in POT. I had paper-traded it before lunch and had a position which was down because of the pullback at 11:15am to 11:45am. It was coming back starting at the 11:45 candle and my position finally went positive so I sold it out for about a $60 gain because I was already going to be 10 minutes late for lunch with a buddy. (Sushi, his turn to buy!) When I returned, POT had just been on a dead run up after I closed out... it was up $1.75 cents per share by the time it topped out at 1:40pm! It was nice trade in the making. So, when I got back from lunch and errands, I decided to get into my real-money account. My first trade was short at 1:35pm in POT. That chart was begging for a break-down and I timed my short right at the top in the last candle of the consolidation area. A perfect entry... the stock never again came within 19 cents of that entry price. Now, the bad news: I covered it for a $52.64 gain. I have absolutely NO REASONABLE EXCUSE for doing it. Again, it never came within 19 cents of the entry... I was never in danger of losing my gains, let alone stopping out on the trade. I have been beating myself up for a couple hours for this stupidity. As a result of selling the position, I attempted to trade it all along the way down. I took three more shorts in it and made money on two of them and basically scratched on the third (-$7.00). At that point, I was up $101. Then I decided I would play for a reverse because on the three minute chart, a small green candle began to form coupled with a reasonable diversion from the mean as well as a rise in volume... all of which I took to be the sign of a reversal. However, it turned out to not be the reversal but rather a small pullback marked by weak volume. The downdraft in POT continued and I did not properly engage my stop and started taking a loss. That is the problem. Not every situation that meets the reversal criteria is correct. This is a game of probabilities; sometimes the low probability option is what happens... sometimes you're just too early even though the signs are right!! Lack of discipline caused me to ignore the stop, and later, add to the loser position. It did come back to nearly even but I only took off half the trade for a $19 loss. The other half seemed to want to move up but then dropped and started to sink. Instead of dumping it, I rode it down and later added to the loser again. This time, it didn't really come back enough to escape with a small loss. I did dump the trade during the EOD consolidation for a $129.12 loss. Total loss on the assinine attempt to reverse while blowing off my stops and adding to a loser was $148.74. I ended the day down $47.58. This is not a killer loss but it is a killer blow to me mentally. I am really angry with myself for neglecting my trade discipline. I am angry for not sticking with my winner, which would have offered me up to $470 WITHOUT adding to it as it grew in gains. The more I analyze it as I write this, the sicker I get. It was right in my hands and I threw it away. There was NO REASON on the five-minute chart to exit that trade!!!!!! In contrast, I held onto the later losing trade like it was a bar of gold.

Why did I ignore my cardinal rule? Because I was influenced by my paper-trading in the morning session. I took multiple stop-outs with mounting losses. I could not seem to get anything to work. During my lunch out, I kept thinking I would have been up considerably using my OLD METHOD of trading. This was not just wishful thinking, I actually would have been up. So, when I returned, I was weak and went back to what had worked for me in the past but which I knew was foolish. It is really hard to trade without emotion; like a machine.

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3 for 7, a 43% success rate. Loss of $48 in about 3.5 hours of live trading. No discipline: failed to use stops on the last trade and added twice to losing positions.

Consolidation Area Trading Tips - from Fear&Greed blog

As I often do, I was studying Scott Farnham's Fear & Greed blog and found these examples of how he trades in and around consolidation areas.

July 1st

After my day-job project, I was able to get into the market for a few trades starting at about 1:30pm. Got off to a rough start when a quick drop in ERX blew through my mental stop in a fraction of a second. I did get out but took a 13 cent loss on what was to be eight cents. After that, I didn't do too badly, although stock movement seemed to be quite muted this afternoon. I had a couple scratch trades mixed in today, which I take as a good sign that I am getting disciplined about stops and trying to keep those pesky losses to a minimum in choppy consolidation areas. There is definitely an art to playing these "quiet areas" which lay between trend moves. One other notable trade was STEC which showed up on the IB "Top Price Range" scanner. I got in, then it moved in my favor. I had about a 7 or 8 cent gain on it so I decided to dump it for a small winner and move on to other stocks. I clicked sell, then the candle popped just a fraction of a second later, I got filled for a 2.5 cent loss, then it moved right back to where it had been when I clicked sell. Now, I know it wasn't my order because my paper-trades don't fire into the market. What it does tell me is that I am making moves in patterns which others are also making. I've seen other examples of this. To me, that is a bad sign... it indicates herd thinking which is preyed upon by experienced traders. In the case of STEC noted above, I remembered that the stock was getting stale at the price level it was resting on as I clicked to exit. As a novice at this, it seems that other novices who were trading Real Money probably got "beaten up and their lunch money stolen" for making the same move. Do I know all this as fact? No, it is a supposition. I think it has a high degree of likelihood.

I had a number of chances to double up on a stock as it moved in my favor today. I didn't take all of those chances but did take two. One was a long trade on ERX for $29.68 at 2:23pm. Moving well, I took it long again for $29.76 thirteen minutes later. I scaled half out 4 cents higher for a $35 gain and then let the other run to $29.87 before taking the whole trade off. Total gain was $105. I got 68 % of that particular move. It was my best trade of the day... took more than 65% of the move, added to a winning position, and scaled out to get some quick profit while letting the original portion run.

Another notable trade was on ERX at 1:49 pm. I bought at $29.86 and waited 10 minutes to sell at $30.02. I captured 64% of the move; 16 cents of the 25 cents available.

So far, so good... the best part of this new approach is not taking large losses. And while I feel as though I have regressed in my training, I know it is for the best in the long run. It will take time to adapt but I am excited about the future...

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8 for 13 winners. Success rate of 61% and a gain of $175 in 2.50 hours of paper-trading. Stops enforced on all trades and no adding to losing positions. Two scratch trades not counted here.

Recap for June

It was a good month except for June 1st. June first was the day in which I closed out my paper-trade experiment from May 29th. This was not a day-trade but two positions (GS,SKF) in which I had a big unrealized loss by EOD but held onto them to learn a few things about how IB worked with regard to margin; more specifically, the process of share liquidation to meet the margin requirement. (I refer you to my summary of May 29th for details) In the interest of disclosure, I will list that big losing trade but also do my monthly summary without it. Loss of that day was -$13,211.
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LIVE TRADING:

Live Trading Gains: +$257, net of commissions.
Live Trades: 23 for 30; 77%
Live Ave Gain Per Day: $51
Live Ave Gain Per Hour Traded: N/C cannot compute, mixed with paper-trading
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Days Live Traded in June: 5 out of 22; 23%
Days Live Traded With Gain: 5 out of 5; 100%
Days Live Traded With Loss: 0
Hours Live Traded: N/C, cannot compute
Largest Daily Loss: DNA
Smallest Daily Loss: DNA
Largest Daily Gain: $128 on June 18th
Smallest Daily Gain: $5 on June 16th
Most Active Day: 7 for 10 on June 19th
Least Active Day: 1 for 1 on June 15th and June 16th

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Paper-Trading:

Gain: +$10,065
Loss: -$3,146 (with June 1st)
Trades: 134 for 176; 76% winners
Ave Gain per Day Traded: $503
Ave Loss per Day Traded: -$157 (with June 1st)
Ave gain per hour traded: $116.59
Ave loss per hour traded: -$36.44 (with June 1st)
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Days paper-traded in June: 18 out of 22; 82% (19 of 22; 86% with June 1st)
Days traded with a gain: 17 out of 18; 94% (17 of 19; 90% with June 1st)
Days traded with a loss: 1 out of 18; 6% (2 out of 19 with June 1st; 10%)
Hours traded in June: N/C, mix of live and paper trading on some days
Largest Daily Loss: -$37 on June 29th (-13,211 with June 1st)
Smallest Daily Loss: -$37 on June 29th
Largest Daily Gain: $1,670 on June 8th
Smallest Daily Gain: $21 on June 17th (primarily because I live-traded that day)
Most active day: 32 for 40 on June 24th
Least active day: 1 for 1 on June 17th (live-traded that day, also day with smallest gain)

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Totals:

Gain: $10,322 (-$2,889 with June 1st)
Trades: 157 for 206; 76%
Ave gain per day traded: $516 (Loss of $144.45 with June 1st)
Ave gain per hour traded: $120 (Loss of $33 with June 1st)

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Days traded in June: 20 out of 22; 91% (21 of 22 with June 1st; 96%
Hours traded in June: 86.33 out of 143; 60.4%