Selling Stocks Short; September 23, 2007

Selling Stock Short September 23, 2007

Inning 6

Last inning, we looked at the problem of getting out of a trade too early. Today, we’ll look at the other side of the equation – letting your losses grow.

We’ve all been guilty of getting out of a trade too early. That’s only painful.

What’s worse is staying in a trade that is going against you and costing you money.

Every investor out there has been guilty of this at least once. Your trading capital is your most precious asset. If you lose it, you’re done. You can have the greatest system, but if you’re broke, you’re done, caput – finito.

In baseball, you can’t get a hit if you’re not in the game.

You avoid this trap by making sure that you have the ability to stay in the game.

Making a trade is making a business decision. The upside is a profitable trade. The downside is a losing one.

Before you ever place a trade, you need to know what you’re exact risk in the trade is. If you don’t, you’re a fool.

That’s first and foremost. If this trade doesn’t work out, what’s my pain going to be?

The other thing that I consider is my time frame. How long am I willing to keep this trade on the books if it’s not working and I haven’t been stopped out yet? There’s nothing worse than dead money.

When you place a trade, decide in advance how long you’re going to keep the trade on the ledger. It’s easy if it’s profitable. What do you do if it just sits there and does nothing?

I like to look at each trade on a monthly basis with a fresh set of eyes. If I was going into this trade today, what would I do? If my answer doesn’t coincide with the trade, I close it out and take my lumps.

Yesterday, we let our profits run and today, we put a floor on our losses.

That’s about it for now.

RAC
The Stock Trading Advisor

Selling Stocks Short; September 23, 2007

Selling Stock Short September 23, 2007

Inning 6

Last inning, we looked at the problem of getting out of a trade too early. Today, we’ll look at the other side of the equation – letting your losses grow.

We’ve all been guilty of getting out of a trade too early. That’s only painful.

What’s worse is staying in a trade that is going against you and costing you money.

Every investor out there has been guilty of this at least once. Your trading capital is your most precious asset. If you lose it, you’re done. You can have the greatest system, but if you’re broke, you’re done, caput – finito.

In baseball, you can’t get a hit if you’re not in the game.

You avoid this trap by making sure that you have the ability to stay in the game.

Making a trade is making a business decision. The upside is a profitable trade. The downside is a losing one.

Before you ever place a trade, you need to know what you’re exact risk in the trade is. If you don’t, you’re a fool.

That’s first and foremost. If this trade doesn’t work out, what’s my pain going to be?

The other thing that I consider is my time frame. How long am I willing to keep this trade on the books if it’s not working and I haven’t been stopped out yet? There’s nothing worse than dead money.

When you place a trade, decide in advance how long you’re going to keep the trade on the ledger. It’s easy if it’s profitable. What do you do if it just sits there and does nothing?

I like to look at each trade on a monthly basis with a fresh set of eyes. If I was going into this trade today, what would I do? If my answer doesn’t coincide with the trade, I close it out and take my lumps.

Yesterday, we let our profits run and today, we put a floor on our losses.

That’s about it for now.

RAC
The Stock Trading Advisor

Selling Stocks Short; September 22, 2007

Selling Stock Short September 22, 2007

Inning 5

How many times have you gotten out of a trade too early?

Even after 25 years, I’m still guilty of this tenet of portfolio sabotage. I’ve gotten better over the years, but it still frosts my cookies to get out of something only seeing it go onto even greater reward.

It’s human nature to want to book a profit on a trade. It feels good. It boosts our self-esteem, our self-image and reinforces our prowess as “masters of our domains”.

There is no better feeling to book a profit and prove to anyone who’ll listen that we have conquered the unconquerable.

Then again, there’s no worse feeling in the world than to liquidate a trade only to see it make like the “Energizer Rabbit” and keep going and going.

How do you prevent this?

The first way is to determine in advance your exit point. Doing this, will mitigate some of the wouldas, couldas and shouldas. When you exit a trade, you exit the trade. It’s done and over with – no second guessing, etc.

The other way is to determine a place where you’ll book a partial profit. When I trade currencies, I trade in units. Each unit is 2 contracts. When I reach my first target level, I book it and move my stop loss to breakeven. At this point, I’ll let the trade take me where it wants to go. I’ve locked in my first profit and my worst case from this point is a breakeven on the remainder.

If the trade explodes my way, I have a great profit. If it goes against me, so be it. I’m flat on that part of the trade.

The old adage of letting your profits run is truer today than ever.

That’s about it for now.

RAC
The Stock Trading Advisor

Selling Stocks Short; September 21, 2007

Selling Stock Short September 21, 2007

Inning 4

I hear this one so often it makes me wonder if people truly understand what they are doing.

Have you ever caught yourself saying – “I can’t buy this because it’s too high?” Or, “I can’t sell this one short because it’s already dropped a considerable amount?”

Newton’s Law, which is a law of physics, says that objects in motion tend to stay in motion. I don’t know about you, but Sir Isaac was far smarter than I. I also don’t know if he was an investor. I do know that he was onto something when he made this particular finding.

If you’re a buyer, just because a name is making new highs doesn’t mean the parties over. Same if you’re a seller.

History gives us some serious precedent on this. At the end of the 1990s stocks like Yahoo and Google were flying. These stocks came out of the shoot too high – doubled – doubled again – and doubled again.

A lot of folks missed the technology boat because the names were “too high”.

On the flip side, how many people wanted to “short” these names but were afraid because they had already dropped 50 or more points? Think about the missed opportunity here as well. When the party ended, it ended. These stocks nosedived. Many tech stocks went out of business. Zero to a short seller is a wonderful sound.

I you don’t want to shoot yourself in the foot, look at each position fresh each day. What would I do today?

Then do it!

That’s it for now.

RAC
The Stock Trading Advisor

Selling Stock Short; September 11, 2007

Selling Stocks Short; September 11, 2007

Today is the 6^th anniversary of one of the worst days of my life. I just don’t feel like working.

As a trader, I make money by taking a position. Some of the trades work out and some don’t. I’ve been able to make a good living doing what I do. I’m truly blessed.

Six years ago today, a number of my friends and scores of acquaintances were murdered when the terrorists struck. By the time the second tower hit the ground, 35% percent of my business had been eviscerated.

It was one of our countries darkest moments. Businesses can rebuilt, hearts can mend, but life as we knew was changed from that day forward.

I have a lot of emotions still to this day. What bothers me is that there are some in this country that just don’t get it. They say it was our fault. It wasn’t. They seem glad that we were attacked and that many of our family, friends and relatives died at the hands of cowards. They give credence and credibility to our enemy.

The media in this country took sides, the wrong side. Many in Congress did the same. They know who they are and they should be ashamed. They won’t be because they are in denial. They’re cowards, just like those that attacked us.

There’s a reason that we are the greatest country in the world. In ten years, I wonder if I’ll be saying the same thing.

I’m proud to have served my country as an Officer in the US Marine Corps.
I’m proud to be an American.
I miss those that I knew.
I can’t comprehend the grief and sadness that lingers to this day.
I pray for those they left behind.
Gone but not forgotten.

The Billy Ray Cyrus song sums it up better than I ever could – “All Gave Some” and “Some Gave All”.

I know that I write about Short Selling in the space, so I’ll leave you with this. The worst trade that you’ll ever make is to sell this country short. Don’t even think about it.

That’s it for now.

RAC
The Stock Trading Advisor

Selling Stocks Short; September 10, 2007

Selling Stocks Short; September 10, 2007

Inning Number 2

The game is called investing and we’ll continue the discussion on portfolio sabotage where we left off last time.

The first inning was about supply and demand. They are always equal and are the reason that prices rise and fall.

The second thing that you can do to sabotage your portfolio is to think that investing is easy. Scam artists tout that you can compete with professionals by following their “Holy Grail” and that all you need is minutes a day …

Poppycock

I’ve been investing virtually full-time since 1974. It’s as hard today as it was then. If it was easy, everyone would be doing it.

If it was easy, everyone would have incredible returns on their money.

If investing was easy, everyone wouldn’t be worried about the return of their money.

Look, the market is always right. Always has been – always will be.

Look around and check out the competition.

Being successful means that you know which team is on the field. Are you in the Capital Appreciation or Capital Preservation mode?

Being successful means that you are “long” the strongest sectors and have “sold short” the weakest ones … Which sectors are which?

Being successful means that your risk/reward ratio is actually what you want it to be. Mine is 2:1. That means I want $2 of return for every dollar I put at risk.

Being successful means that you’re taking the time to understand your investments and executing your written plan of action. I do this full time. How much time do you put it?

That’s it for now.

RAC
The Stock Trading Advisor

Selling Stocks Short; September 4, 2007

Selling Stocks Short; September 4, 2007

As you can see from the picture on the right, I’m a baseball guy through and through. One of things that I’ve learned through the years is that there are a number of parallels between the game of baseball and the game of investing.

As an umpire, I’m just an unbiased observer of the action. I get an up close and personal view of the strategies used by each team to secure a victory.

Many times, the best laid plans can go awry. In other words, the losing team has done something to snatch defeat from the jaws of victory.

We, as investors have a tendency to do the same thing. Notice that I include myself in the group. Even professional investors do things from time to time that can really muck things up. No one is immune from errors. Even the best make one from time to time.

Over the course of the next week or so, I’m going to look at 9 key reasons how investors snatch defeat from the jaws of success. In other words, we’ll look at the different ways that investors can sabotage their portfolios.

Sabotage is a word that I’ve used for years. Until this morning, I don’t think that I ever looked it up.

sab·o·tage (sb-täzh)
n.
1. Destruction of property or obstruction of normal operations, as by civilians or enemy agents in time of war.
2. Treacherous action to defeat or hinder a cause or an endeavor; deliberate subversion.
tr.v. sab·o·taged, sab·o·tag·ing, sab·o·tag·es
To commit sabotage against.

Source: http://www.thefreedictionary.com/sabotage

Inning #1

As you can see from the above definition, sabotage is an action taken to defeat or hinder a cause. The first thing that most investors do to sabotage their portfolio is to forget what they learned in Economics 101.

SUPPLY EQUALS DEMAND

Prices change for one and only one reason – the supply or the demand for something has changed. It’s that easy and at the same time hard to grasp.

You can own shares in the best run company in the world, but if there is no demand for their product or service, you are going to lose money. Period.

One of the reasons that I chose to specialize in Point & Figure charting which is a form of technical analysis was that the graphical relationship between supply and demand was plotted in an orderly logical way that was easy to understand.

Always keep this in mind:

Prices go up because there DEMAND IS GREATER THAN THE SUPPLY. Conversely, the price goes down when SUPPLY IS GEATER THAN DEMAND.

That’s it for now.

RAC
The Stock Trading Advisor

Selling Stocks Short; September 2, 2007

Selling Stocks Short; September 2

Why I Keep a Trading Journal.

One of the major things that separate professional traders from amateurs is that professionals know and understand the importance of keeping a trading journal.

While every one is different, I use my journal as a way to measure, track and stay focused on the task at hand. It’s an ongoing dialogue that I have with myself and over time has served as an incredible learning tool. I don’t use a specific template, but there is a method to my madness.

Some of things that I make note of each day are:

1. My daily trading goal. How many pips or points am I looking to bank today?

2. Is there anything going on in the world that might come into play?

3. Is the Federal Reserve looking to say or do anything today? More specifically - is Chairman Bernanke or one of the Fed Governors giving a speech today that might surprise the market.

4. Are there any economic numbers due today? If so, what are the estimates and is the market giving any kind of tell as to its anticipated direction?

5. I then bring up the charts and make notes of where we are on each one.

For my stock trades, I use a point & figure chart. I update these each day by hand and have found that they suit me best for what I am trying to accomplish.

For currencies, I use Japanese candlesticks and multiple timeframes. I use the 6 month daily chart to determine my trading direction. Which currencies am I going to be long and which am I looking to short.

I then go to the hourly chart and look for my buy and sell signals – how close am I to each?

Once I have a signal, I then go to the 15 minute chart for my confirmation.

Once a signal is confirmed, I then use the 5 minute chart to find my entry and exit points.

6. As I work through toward the end of the day – I make a note of how things are working out. Did I make my goal? If I did, what caused it to happen? If not, why not. What did I do well today? What could I have done better?

This is where I get tough on myself – this self analysis really helps me learn the art of trading. I find that this daily engagement extremely therapeutic.

What I am trying to get to the bottom of is the answer to the question – am I a better trader today than I was yesterday? What have I learned about the markets? What have I learned about myself?

We all know that the market is a very unforgiving place. As a trader, I’m in this pretty much by myself. I know that everything happens for a reason and it’s in best self-interest to know as much about me as I possibly can.

The more that I understand who I am, the better my performance will be.

That’s about it for now.

RAC

The Stock Trading Advisor

Selling Stocks Short; September 1, 2007

Selling Stocks Short; September 1, 2007

The CSI 300 Index of Chinese stocks logged its 7th straight all-time high recently. If my math is right, the gains YTD are more than 150%. This looks like a major blow-off is building and when the bubble bursts, it could mean that there is some serious money to be made on the downside.

If you look at the option action, it’s ridiculous. It’s rampant out of control call-buying speculation like I have never seen. It’s way too optimistic and it really is looking like a top to me.

A couple of names that I am looking to short or buy put on are China Life (LFC), Aluminum Corp of China (ACH) and iShares ETF FTSE/Xinhua China (FXI).

That’s it for now.

RAC
The Stock Trading Advisor

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