Monday, May 22, 2006

Mercatorius Expletio - Stopped out

Day 31,32,33 - The week of the crash
Total Account Value: $3540
Available Equity: $3292
Positions Remaining Open: 2

I've never been one for game shows. Not only do they offer some of the driest television moments you will ever behold, they also incubate simpleton culture in their simpleton viewers' minds. And would any expert disagree that the illusion of free money and prizes is unhealthy?

I just finished watching an episode of "Deal Or No Deal" that made me feel sick to the stomach. A friendly looking yet doltish mother of six was vying for a 1/26 chance of taking home $200,000. Half way through, the cards were falling nicely and the "bank" was offering a generous $40,000 guaranteed if she decided to walk away. But seems there was a reason behind her daredevil confidence.

"We own a holiday house in Point Lonsdale (affluent Victorian beachside community) that has passed down through two generations," she said in so many words. "At some stage it was mortgaged and now we need to find $400,000 to keep it." God knows what the funds were needed for, but if I was the ancestor who built the house with my own sweat and blood I would be turning in my grave. The charismatic host oohed and aahed and gave her a "shoulder to lean on" but I bet he was thinking the same thing I was - another Cashed Up Bogan (CUB) that the popular media has been talking about recently. Think David and Victoria Beckham, Russell Crowe, Shane Warne and on the not so famous side, jacuzzi-buying goldminers. This former CUB had gone bust though, and she was (quite literally) risking the house on a pure, televised gamble. Reverse Darwinism taking over - survival of the dumbest.

I'll spare you the torture but she left the studio $5 richer. A booby prize for the boob who fancies faith over reason. It was a very timely reminder that most people in the world have little practical intelligence when it comes to risk mitigation and money management. Alarmingly though, consumers like these actually keep the economy ticking over. Watching the public humiliation of the CUB left me vindicated in my decision to stop myself out of trading altogether.

Yes, I've been away for a few days, not because I've been brooding over my losses but because I've been lacking the right words for this diary entry. Wednesday of last week was average but unspectacular as my account balance fell slightly yet again. However I erred fatally in placing complete trust in my charts - the individual daily, weekly and monthly charts of different (non-resources) stocks. Unfortunately, more longer-term buy opportunities were noticed. So through the carnage that occured on Thursday not even my loose stop losses and minor position sizes could save me from a sad demise.

My running account balance collapsed through my maximum loss limit of $4000 to $3400 before making back $100 due to the survivors (HSP and ABC). Gaps appeared on just about every chart no matter what the circumstances, and most rose slightly after that. If anyone made a killing on Thursday they must have combined fiendishly good future with a disregard for the "rules". (Shorting most big resource stocks would have been risky). My biggest annoyance was that in the most recent two weeks I had earmarked many stocks as strongly bearish but shorted them unsuccessfully. Now they have responded - ILU, AXA, MBL (ouch), BIL, RIN, WPL (ouch), ASX - you've seen me talk about them all. The obvious lesson here is to keep stop losses loose but is that safe in an underlying bull market?

So that's the way it is. And even though I wince to admit that my experiment ended in monetary loss I'm not ashamed to say that I failed. Give or take, I have learned more in the last two months than I could have learnt in two years of reading. A good friend reminded me on the weekend that if I started this last year I would be rich. While hearing this buoys my spirits I will not place all the blame squarely on the market. Shit happens and you must expect the unexpected. Still, the market has been wacky lately and is no environment for a beginner.

When the kinks are ironed out and everyone re-mounts the bull I will resume (only on a lesser, less active scale). However, while the followers who follow fables of guaranteed riches will erase from their memories all events further than one week past, I will remember how it felt to crash land. I'll remember how it felt to admit to others that I wasn't good enough, and that I had no choice but to succumb without an opportunity to resurrect the situation. But most of all I'll remember how good it felt to brush away the dust and keep walking, only slightly bruised but nowhere near broken.

Tuesday, May 16, 2006

So bad, it's embarrassing

Day 30 - Tuesday
Total Account Value: $4315
Available Equity: $3345
Positions Opened: 3
Positions Closed: 5

Ouch, that really hurt. Don't laugh at me people...

The market fell again for the third consecutive day and although some of my positions were holding up, big collapses in NCM and ARQ are largely responsible for that horrible looking account balance. Newcrest Mining, which broke out from a triangle pattern on the 8th of May, had been performing quite well despite all the chaos surrounding it. Yesterday it closed a small downward gap and despite my nervousness on resources stocks, I had picked this based on long-term charts was confident it would see it through. As such my stop loss remained very loose to allow for volatility. Today it plunged 6.4% right through the 20-day SMA and the few days of handy gains turned into maximum loss.

Arc Energy was a similar story - after 3 trades on this stock I have lost a total of $276. The price really doesn't seem to pay much attention to support and resistance. Iluka Resources (ILU), which I had shorted, bucked the trend and began to rise through my stop loss. Once again winners turning into losers. Luckily PMN held out and RIN exhibited further weakness.

The paradox I faced today was watching strong movements happen everywhere but being unable to find many safe entry points. The problem with transitioning from a short-term trading style to an "enter and hold" one is it must be built up slowly. Many stocks have been hovering around long-term support and resistance and are indecisive about when the move will be made. BSL, CSR, ABC, IAG, AWC - the list goes on and on. I really shouldn't be going long until the bearishness has passed and it would be foolish to go short when they seem to be closing in on a reversal. It seems the only lucrative shorting options at the moment are BHP, RIO, OXR, ZFX, FMG etc. but that is way too speculative for me. Without patience I will only continue to bleed.

The promising fact is that I have noted down a list of stocks that appear close to reversals when I couldn't find any at yesterday's close. Something's gotta give.

Monday, May 15, 2006

The red sea

Day 29 - Monday
Total Account Value: $4806
Available Equity: $3107
Positions Opened: 2
Positions Closed: 4

Wow! What a sight to behold today. It was the biggest single-day fall since last October as resources stocks took a king hit. My decision to avoid some of the larger players in the industry was vindicated. I wonder how all the "Johnnie-come-latelies" with undiversified portfolios felt when they left the office for morning tea today. Only the coolest, most experienced minds would have been able to shake off chaotic events such as Zinifex's (ZFX) 8% collapse. I had been raving about this stock just one week ago - I guess it just goes to show how controlled by external events much of the Australian stock market is.

Just about everything fell today with the exception of Leighton Holdings (LEI), which notified the public of an expected 20% proft increase. Not even DCA Health (DVC) could recover from a monumental drop of 19% yesterday. This serves as a valuable reminder not to enter a position simply due to a large fall or gain. You should actually wait for it to start returning to normality. Also, DVC proves that trading solely on "market sensitive" news is folly. On May 11th, a press release announced "DCA Plans Further Aged Care Growth." Second only to resources stocks, the media's other pet subject is the positive outlook for the health industry due to the ageing population. Looks like the market was having none of it.

As for me, I was unable to part the red sea, but my losses were generally contained. BNB was stopped out after a massive opening drop. Keeping looser stop losses has its benefits but on a day like today you end up losing much more than is necessary. This is one stock to keep an eye on however. Promina struggled early and just pipped my stop loss before rising back up a few cents. The annoying aspect was that this price was quite a bit below significant long-term support. Sometimes the pressure is just too great. On a day like today, the stocks that finish strongly (while still down) are the cream of the crop. PMN rallied and the buyers arose from the ruins to re-establish old support. I re-entered at $5.79.

It was my shorts in RIN and BIL that saved my bacon however. ILU also continues to fall and my target of $7 is looking more and more achievable.

Now what's the bet RIO and BHP rise by more than $1 tomorrow?

Sunday, May 14, 2006

Week 6 Summary

Profit/Loss to Date (closed positions) - $1548 loss

This week
Positions closed - 17; Positions currently open - 8
Winners - 7; Losers - 10; Win/loss ratio - 41%
Biggest Loss - $177; Biggest win - $423

In what was a very stressful week my trading success and confidence levels fluctuated wildly. I also came to the realisation that my current system (or lack thereof) is not the most efficient way to make money. The shorter the time frame the more effort is required to ensure that wins don't turn into losses. More discipline is required to keep from overtrading, which although it allows me to spread my risk it encourages poor decision-making (which includes closing positions too early due to paranoia or to free up equity - both extremely bad habits). Also, I'm sure that many hardcore traders out there would disagree, but a touch of luck is a great help when opening gaps and market indecisiveness are involved. If no luck was involved, foolproof get-rich-quick systems would have been developed long ago.

It's heartening to see that although the number of positions closed has halved compared to Week 5, the win-loss ratio is beginning to look respectable. Six weeks sure does feel like a LONG time in the trading world.

Friday, May 12, 2006

If a tree falls in the forest...

Day 28 - Friday
Total Account Value: $5187
Available Equity: $2791
Positions Opened: 2
Positions Closed: 0

I didn't even log on to my trading platform until 11am today. That's how confident I am that my "big picture" strategy will work in the long run. There's no need to panic when daily losses occur - it's much worse when trades are taken with the daily flow and not closed out before the day's end. Today the market opened down and stayed down, but my stocks were holding up quite decently. Following a gain of $600, a loss of less than $100 is not bad at all.

Stop losses are one aspect I feel I've improved on. Both BNB and PDN would surely have been stopped out if I stuck to my original pattern of trailing a tight sell order after a day of large gains. I kept reminding myself of Timbercorp (TIM) - the fish that got away last week. Despite technicals indicating strong bullishness I grew paranoid as it followed a successful day with mediocrity. I was happy to exit the position with a gain (such was the overwhelming quantity of losses I'd suffered) at $3.43. The stock now sits at $3.79, which would have boosted my profit to an amazing $621! Trees were falling in the forest and I didn't hear.

I shouldn't be dwelling on mistakes but occurences like this are handy to reflect upon when faced with similar circumstances. Cut your losses early and let your winners run. It's been said many a time before and I'll say it again.

Iluka Resources (ILU) continued to fall with conviction so I pyramidded what was a tiny position to boost the holding to around $7500. In no way does this break the bank but you may have noticed that my conservative half is starting to win the battle over my inner brash adventurousness. The charts point toward heavy support at $7.00 even so I will monitor this closely over the next few trading days.

Bank of Queensland (BOQ) appeared ready to bounce off support at $15.00 but I wanted to wait and see what would happen throughout the day. It fell through to $14.85 but the order book looks very thin so I let the opportunity slip by. It will be interesting to see whether the $15 mark has now become solid resistance or not. The other interesting two are Arc Energy (ARQ) and Bluescope Steel (BSL) which both appear to be hovering around major support and resistance zones. Soon uncertainty will give way to confident movement and I will be ready to pounce. This method is much better than pre-empting the market - I may feel like a hero if the cards fall my way, but if they don't I'm no more than an idiot.

Thursday, May 11, 2006

Pendulum of fortunes

Day 27 - Thursday
Total Account Value: $5263
Available Equity: $3377
Positions Opened: 2
Positions Closed: 3

Well there ya go! For the fourth day in a row my account balance has changed by more than $600 a day. Does this mean I'm an inconsistent trader or is it just an example of sharemarket volatility?

There is little to report today as I didn't actively trade as much as I have in the past. Most of the past couple of days has been dedicated to scanning monthly and weekly charts, paying particular attention to moving averages and plain old lines of resistance and support. If a stock's chart displayed scrappy looking, inconsistent movement I removed it from my watchlist. One of these was what had become my trading nemesis - Lend Lease Corp. (LLC). I think this stock a nightmare for both traders and investors.

Some charts showed really nice looking trends and pullbacks, and some of these were very close to the current price of the stock. In a spreadsheet I have written notes beside all my stocks documenting the overall trend (bullish if above 40 day EMA, bearish if below) and short term trend (possible temporary reversal toward support/resistance). The actual values of major support and resistance prices have also been recorded. I plan to take longer term positions when bullish stocks recover from short term reversals and take shorter term positions on trending stocks that change position against the prevailing trend. As such I will avoid some resources stocks such as BHP and Oxiana. Even though these may be profitable, recent gains have gone exponential. With such uncertainty currently surrounding the market I would prefer to wait out these on the sidelines.

Newcrest Mining (NCM) and Promina (PMN) are two stocks that are resuming bullishness. Check out the weekly chart of PMN on a 2-3 year time frame and you'll see why I was keen to go long. It has just broken major resistance and the market depth chart agrees - a strong looking barrier has built up around the $5.80 mark. BNB continues to accelerate and I will stay long with a "loosish" stop (than usual for me) until it adds roughly another dollar.

I barely looked at the daily charts while trading was in progress, but there were some tempting entry signs which I refused to take. If I'm disciplined about trading from the forest (rather than the trees), my crippled trading account will surely recover.

Tuesday, May 09, 2006

Not happy, Jan

Day 26 - Wednesday
Total Account Value: $4569
Available Equity: $2402
Positions Opened: 6
Positions Closed: 7

Note: I accidentally overwrote Tuesday's entry with Wednesday's and have no backup. Being hopeful here but does anyone know about retrieving a backup copy?

Oh dear, what has happened? In what other realm can things turn pear-shaped so quickly? Somehow I've managed to keep the losses in perspective and not let them eat away at my psyche. This morning on the second day of the medical test I was engaged in deep conversation with a young lady for a few hours, unaware of the impending doom that was about to befall me.

It wasn't until she mentioned saving scrupulously for three years for a trip to Europe that it twigged. A self-confessed spendthrift, she told me that I can save easily too if I want to, and that all it takes to form a disciplined habit is 21 days. I didn't mention the sharetrading, but after 26 days the payoff has not yet come. The thought of this makes me feel a bit wasteful, even though money means very little to me. It's not that I think money grows on trees, but I don't believe that accumulating wealth at all costs is the key to happiness.

I came from a modest upbringing - I never had a lot of possessions so have learnt to live without them. It embarrasses me to say it, but at the conclusion of 2004 I had merely $50 to my name. Studies were tough and having never had a casual job (don't ask why) expenses took their toll. After working and saving I now have a comfortable stash of funds, which is why I took on this challenge. Based on my history neither greed or fear is driving me, just the desire to succeed. Surely this could not be my downfall in such a cutthroat "industry"?

Anyway, I like getting out there and talking to people, so until my conversation partner told me she had a dream about colonic irrigation, it was pleasant to be away from the PC. Back at home I almost expected the disaster that had happened. Fours stop loss orders were filled near 10am after yet more gaps appeared and sentiment for individual stocks turned full circle. I entered some positions based on my favourite, successful breakaway patterns - BNB is set to continue rising, NCM is showing bullishness and DOW finally broke out of its triangle pattern (I watched the thing for days when it finally happened I missed most of the action...).

When I first began researching trading and technical analysis the most common message was "beware of false signals, use suitable time frames on indicators to prevent whipsaws etc. etc." I quickly learnt that some indicators were largely useless because "signals" would appear on them much too regularly. For instance does anybody pay attention to Williams R% and the crossing of the slow and fast lines on a Stochastic?

The point I'm trying to make is that my daily charts for major Australian stocks are whipsawing just as badly. Signals say one thing, the depth screen says another, and then the price does its own thing. Yesterday I backtested a few signals to prove this unreliability. Moving averages are rarely respected. Check out a chart like Woolworths (WOW) or Ansell (ANN). Do you think you could have made consistent profit from these (without the gift of hindsight)? I've been looking at a few US stocks and their patterns appear so much smoother and sexier - does anybody else notice this?

Which brings me onto the "lamb to the slaughter" nature of the All Ordinaries. Just as in foreign affairs, Australia is America's and England's bitch. Our market is largely dictated by overseas markets and base metal prices. All I can say is thank god for the resources boom. All of this means trading on a day-to-day basis is low percantage and involves some luck, pure and simple.

I have therefore decided to go back to monthly charts on a four year time frame, complimented with weekly charts. Now these charts actually reflect the individual company rather than market swings. Support and resistance are significant and the 20 and 40 Exponential Moving Averages are reliable. Take a look at ILU, CEY and MAP and you'll see what I mean. This new strategy will involve looser stops, pyramidding, and holding for positions (and taking profits) for medium-term.


Monday, May 08, 2006

Minimum effort for maximum profit

Day 24 - Monday
Total Account Value: $5988
Available Equity: $3492
Positions Opened: 3
Positions Closed: 2

I'm relieved to say that not much went wrong today! In my most prosperous Monday so far, all open positions grew steadily throughout the day with the exception of my only remaining short, RIN, which I had believed to be strongly bearish. There was little need to overtrade as my "portfolio" was setup last Friday. I had entered a few longs then that were indifferent, leading me to spew out negativity in my last daily posting. Off days or "boring" days followed by positive days seems to be the common pattern in my trading. I've realised that there's more harm than good in trying to make every day a winner (by going for risky "quick win" trades).

My new data based on weekly charts helped immensely. Since the market opened well up, I filtered my list to display only moderate and strong bullish stocks, of which there were 11 (out of 45). Two of the four strong bullish stocks I had identified (JBM and BNB) were already in long positions and surged ahead strongly. The other two were Australand Holdings (ALZ), which is slower moving low-price stock and ZFX, which benefitted me so much last week. I set a price alert for ALZ at one tick above a recent high, and went long on ZFX as it gapped open with strong buyer support.

I did not even look at the rising stocks I had tagged bearish. This would be a complete waste a time. Perhaps late in the day shorting opportunities would arise but for now going against the trend would be flirting with disaster. This kind of discipline prevented me from staring at charts/order books for too long and overtrading.

Two other longs were set (MAP and AWC, which gapped up and overcame the 20-day SMA) and that was my trading done for the day. Just set and forget. I actually had no choice as I had an appointment to attend a medical test for fructose intolerance. This involved sitting in a room with a bunch of old ladies taking a breath test every 15 minutes. I was the last to leave after 4pm, so I was hoping that not too many entry or exit signals had gone begging.

It was a pleasant surprise to see a daily profit of nearly $800. BNB was the big winner with a lovely 3.9% daily gain. However when is anything ever completely perfect? The downside is that having no open short positions leaves me vulnerable and some of the big gainers look ready for a gap down or stagnation. All I can do is wait.

Also found a great, comprehensive article about common trading mistakes that is a must read for all new traders:

Sunday, May 07, 2006

Week 5 Summary

Profit/Loss to Date (closed positions) - $1573 loss

This week
Positions closed - 32; Positions currently open - 7
Winners - 9; Losers - 22; Win/loss ratio - 29%
Biggest Loss - $129; Biggest win - $467

The figures are not looking too flash this week. I tend to hold on to my winning positions for longer than the losers, and reducing my maximum loss limit has allowed me to do this with more confidence. The one positive is that while my ratio of success is quite poor, winning positions have consistently added more to my balance than losers have deducted. My experiment with a greater volume of trades has allowed my overall balance to look healthier than my losing streak a couple of weeks ago. Now the challenge is to turn more of them into winners, and prevent the winners turning into losers.

I have scanned in detail all weekly charts on my watchlist using a variety of measures - price movements, support and resistance, volume, stochastics, MACD, On Balance Volume and money flow. Each stock was then classified with its trend and the strength of that trend - either weak, moderate or strong. I will rely on this list in the coming week.

Treading water

Day 23 - Friday
Total Account Value: $5253
Available Equity: $2866
Positions Opened: 5
Positions Closed: 7

Friday's update is a bit late because I've had a very busy last few days. Hopefully this has helped to clear my head a little. The daily commitment I've been putting into trading is beginning to grow a little dry - simply setting price alerts at predetermined possible entry points has not been enough. Prices are so volatile that I find myself watching the price depth screen for much longer than I should be.

Today I made a few mistakes, so instead of waiting it out I closed the positions out prematurely before more damage could be done. This is still costing me brokerage though which is a particular sore point. I feel like I'm stuck in no mans land between two strategies - day trading and end-of-day trading (holding positions for a few days) - and this is causing me to overtrade and make mistakes. Most of the stocks on my watchlist show daily charts that are all over the place, with the exception of MIG which has not had a positive day for nearly a month. So despite making a decent number of smart trades I have allowed too much rubbish to slip through the gaps. When the market is uncertain, I'm uncertain!

Rinker (RIN) remains a positive in my current portfolio, continuing to steadily fall after reaching an all-time high about 10 days ago. Babcock and Brown (BNB) is beginning to show the bullishness which has been brewing in the charts recently, so I've added to the position to make the most of it. Breakouts such as this (following 'boring' price action) have been far and away my best moneyearner so far. Jubilee Mines (JBM) is another that seemed set for a recovery on Thursday - the gap open this morning allowed me to trail my stop loss to lock in profits. The weekly chart (which I will analyse thoroughly for all "watchlisted" stocks before Monday) for JBM looks very promising so I'm keen to hold for the time being.

Wednesday, May 03, 2006

Up close and personal with the "mum and dad" investor

Day 22 - Thursday
Total Account Value: $5405
Available Equity: $2286
Positions Opened: 7
Positions Closed: 8

This morning the All Ordinaries finally responded to yesterday's news of an interest rate rise, shedding more than 60 points in 10 minutes. Much of this can be attributed to the "mum and dad" or amateur investor, who wield great influence on opening prices. Allow me to give you a glimpse into their Wednesday evenings.
In a leafy suburban street, John Smith pulls his oversized Ford Falcon into the driveway, right behind his wife Jan's 4WD. She insisted they buy the latest safety-enhanced model when the twins were born. The spare car sits idle in the garage, right beside the matching bicycles which have lost their original sheen - now covered in cobwebs and dust.

Dad: "Hi honey I'm home! Sorry I'm late for dinner, the traffic was almost as horrendous as this morning."
Mum: "That's alright honey, you weren't late for work again this morning were you?"
Dad: "...well the boss wasn't too happy. He wants me to work this weekend s..."
Mum: "You were supposed to take the twins to the zoo! You're missing out on..."
Dad: "Enough! It's not my fault that the three multi-level carparks closest to work were full by the time I arrived in the CBD!"
Mum: "Remember when I said you should have taken that job closer to home?"
Dad: "We've discussed this before...I've already put up with Gary from work rubbing it in my face all day because he caught the train!"
Mum: "Alright sorry darling. Did you hear the news today?"
Dad: "The miner rescue? Yeah that was a heartwarming story in the end."
Mum: "No the interest rate hike. Today Tonight says it will cost the average household another $50 a day!"
Dad: "Well it wouldn't be so bad if you stopped spending my money on clothing and shoes. Have you seen the latest credit card bill?"
Mum: "And you can talk? What about the home entertainment system you bought on store credit from Harvery Norman!?"
Dad: "Ssshhh! Lower your voice, the neighbours will hear."
Mum: "And do you realise how much it costs now to fill up the Pajero? We need to save for Timmy and Jimmy's education."
Dad: "Calm down, I'm working hard from 9 to 5. What more can I do?"
Mum: "Sell those shares you've been talking about lately"
Dad: "But they've gone up 10% and Simon at work said they're undervalued..."
Mum: "Remember what happened with our Telstra shares? It's gambling!"
Dad: "It's not g..."
Mum: "Sell them now John!"

After McLeod's Daughters, as John regrettably logged on to his trading platform and did as he was told, an ad for a dating site piqued his curiosity on the MSN homepage. Many thousands of similar conversations took place across Australia as online brokers gleefully filled their pockets with excess brokerage fees.

Meanwhile, an overweight single man had just returned home from a doctor's appointment regarding his high blood pressure. With a small but handy share portfolio, he fancies himself as an investor. Despite losing money in the tech wreck, he made some of it back on Lihir Gold thanks to a tip from a high school buddy. As he settled in front of the TV with a big bowl of cheesy lasagne, his ears pricked up as the finance reporter told of a rate rise.

"Oh no, that's not good at all! Australian businesses will struggle and there will be a market correction? What will happen to my stocks? Coles Myer, Woolworths and most of the banks have fallen today? This is bad, bad news.... *wheeze* ...the bubble has burst again! Sell, sell, sell!"

Completely ignoring the long term impact of the news and the failing to understand the extent and potential of Australia's resources boom, our friend is driven by fear and panic, selling off most of his portfolio before digesting his lasagne.
The third character in the story is the shrewd trader. Picturing the scenarios above at quarter to 4 he pre-empts the market, going short on some of Australia's heavily traded blue chip stocks, particularly BHP, RIO, WPL and TLS.

But I wasn't any of those characters. I was the "she'll be right" kind of trader. I knew that the market would open down but I wasn't wise nor bold enough to close profitable positions or open shorts purely on speculation. I do possibly rely on technicals a bit too much, but that's my strategy. Sometimes it works, other times it doesn't. I knew BHP and WPL would fall but they are medium term trades, so I thought my stop losses were loose enough. Obviously they weren't! Two losses now on BHP is becoming a joke.

I had tightened up stops on winners OXR and ZFX, but they really should have been closed when my profits were the highest. My total gain from Zinifex was $472, which is still impressive.

My shorts did well throughout the day including CPU, RIN and AXA as well as Lion Selection Group (LSG). However this was thinly traded today so I shfited the stop loss as close as my broker will allow.

Some stocks at the end of downtrends showed buying potential such as Amcor (AMC) which has only gone down since positive news was released about the business. Today's price surpassed two candlestick hammers that had decreased in volume, and closed the gap which opened on Tuesday morning. Babcock and Brown (BNB) has formed a very nice looking pennant pattern over a long time period. The direction was positive before this formed and I saw appealing signals for a bullish breakout. The money flow indicator has signalled a flood of recent trader confidence, and a gap open today on decent volume (despite downward pressure) convinced me to go long. I'm currently $100 ahead.

$5405 is overall not a bad result on a day like today. Too bad it didn't stay at $5550 like it was at 3:55pm! How did my readers cope with today's action?

Tuesday, May 02, 2006

Have you had your zinc today?

Day 21 - Wednesday
Total Account Value: $5803
Available Equity: $3092
Positions Opened: 6
Positions Closed: 6

Today was surely the exact polar opposite of yesterday.
  • Yesterday I woke up afresh at home feeling that my cold had passed. This morning I woke up far away from my trading desk at my girlfriend's house with a croaky throat.
  • Yesterday I had time to check the news and look over my open positions before 10am. This morning we were stuck in hellish traffic (1.5 hours to get from one side of the city to the other, which usually takes 45 minutes), while the newsman spoke of the Reserve Bank's interest rate hike. A nervous drive ensued. To be honest I was expecting my mobile to ring with a margin call.
  • Yesterday I had a long position on oil which turned in a nice profit overnight. This morning my second attempt met with failure. Only just though! My stop loss was set just a few ticks too high and my "should-have" $300 win was actually a $100 loss.
  • Yesterday most of my positions stagnated, sending my balance sharply downward into the close. Today every position played their part, forcing my balance upward in a late charge.
And all this happened despite losing MAP and ILU on the open and having to close the non-performing ARQ and IAG, which seems to have met an inpenetrable fortress of resistance at $5.70. However market depth has just changed at 4:30pm and it looks like buyers are regrouping for one last assault. I'm not worried that I exited a touch too soon. That's trading - you need to make decisions and stick by them.

Even though my short position on Rinker Group (RIN) was stopped out midway through the day, there was a clear opportunity to re-enter. This is the first time I've done this and it ended up in success (apart from the $20 extra brokerage). Just a warning to be careful when trailing stop loss orders, because I had placed one a little too close.

OXR, BHP and WPL all made some decent but unspectacular movements as did AXA, which I have shorted again (originally on April 20th) as it continues to make weaker and weaker "comebacks" since early March. There is now a triple divergence between price and MACD so we'll see what happens.

Fortescue Metals (FMG) met with resistance after solid gains in the past few days despite the mini-correction so I went short as it fell below the previous day's low (which was a spinning top on a volume spike). It fell heavily but since the stock was so thinly traded I exited $160 better off. Wouldn't want to push your luck shorting resources stocks in this kind of environment!

But my star pupil of the day was none other than zinc producer Zinifex (ZFX), which is up by $600 at this point in time. Used as a supplement, zinc speeds up the healing process after an injury. It's surely done that for me in the past two days!

Yay for happy mornings!

Day 20 - Tuesday
Total Account Value: $5193
Available Equity: $2660
Positions Opened: 7
Positions Closed: 4

Mornings have become a time of fear and dread for me. If you've been reading the blog, you'd know opening gaps are my arch nemesis of trading! This morning the tables were turned. I was greeted with an opening balance $150 greater than when I left yesterday. My long on the oil price made some nice predictable gains and I closed out (temporarily) about US$200 ahead. Commodities are risky for me because I can't monitor them overnight, but hey at least they can't gap!

The All Ordinaries fell considerably then rose again throughout the morning but somehow all this volatility didn't impact me negatively. At one point I had added roughly $500 for the day. This was due largely to the performance of Zinifex (ZFX) which arose from the resources correction with plenty of spark. I have been very wary about gapping of resources stocks like BHP, OXR, WPL, ZFX, RIO, JBM etc. Therefore I will set a stop losses fairly loose and hence take on a small position size. The initial ZFX position was a measily $3500 (on margin that is). I pyrammided after seeing that its strength would continue - by days end I was quite pleased. It showed the I can maintain strict money management practices and still profit.

But that's where my pleasure ended! The tide turned just after lunch as my losing positions grew worse and my winning positions stagnated. Woodside Petroleum (the second of my medium term CFD trades along with BHP ) did little after starting well, ARQ began to slide heavily and PMN could fall no more after tantalising me with temporary profit. Just glancing at the price action on the Promina chart since the 13th of May would fill anyone with frustration. The number of false breakouts and craziness on there makes me wonder why I don't relegate it to the "get stuffed" basket. Santos is another that was (and still is) behaving like this - I haven't traded it since April 6th.

I had long positions in Downer EDI (DOW) and Brambles (BIL) but it seemed they were shackled down. The charts told me to buy, the market depth screen told me to buy. But in the end I sold out with paperthin losses as the overall downward force of the market took charge.

Still positive signs for tomorrow though. Zinifex is shining, Woodside and BHP will only continue to recover and modestly sized positions were opened in Macquarie Airports (after seemingly completing a downslide) and Oxiana (finally I get a chance to see where one of the ASX200 most exciting prospects will take me).

Monday, May 01, 2006

Monday will always be there...

Day 19 - Monday
Total Account Value: $5136
Available Equity: $2734
Positions Opened: 6
Positions Closed: 5 ruin your weekend!

That's right. You wake up feeling refreshed and happy after a good night's sleep and then BANG! $800 down the toilet in just 10 minutes. It was difficult to fathom the extent of devastation as so much was happening at once. But it didn't take long to realise that short positions in CPU, PDN and CML had dropped off the radar. Luckily my frugal money management allowed me to escape without overall loss, but it seemed the mediocrity of Friday's trading flowed on to today.

I'm sure many regular sharetraders were delighted this morning. Don't get me wrong I had longs too, but they were flatlining almost as badly as my shorts! So much for diversification! MBL seemed OK at first but ended up uncharacteristically taking a single day dive from $71.95 to $70.38, taking my stop loss along the way. It really didn't perform very well after the teacup pattern so who knows, today's profit taking might just have dried up all the bearish sentiment.

Two other shorts in PMN and RIN were also pushing dangerously close to their stop losses but I held on - it seemed they had run out of buyers. Also I knew that the market would make its move in the first 10 minutes and keep steady thereafter. Here was the familiar problem that I've faced many times so far - stocks gap open or down and that largely completes their daily action. I had my eye on Oxiana (OXR) as it has been steaming in the past month. But it gapped way open and showed strong seller support on the market depth screen. Note to self: BUY A GOOD LOOKING RESOURCES STOCK JUST BEFORE THE CLOSE ON A BAD MARKET DAY.

However I did re-enter BHP after the dust settled. Let's see how this will fare over the next few weeks/months. Zinifex (ZFX) and Arc Energy (ARQ) were two others I took the opporunity to enter. ARQ bounced off resistance yesterday and opened above the 50 day SMA this morning. It appeared worth a shot.

In the end, RIN and PMN came through and are majorly responsible for my $300 recovery throughout the day. That and the US Oil price, which I re-entered again after seeing it finally start to look positive again since hitting an all-time high early last week. On the 2 hour chart you can clearly see the price break over a solid downward resistance line, churn a little bit before bouncing back off the the now-support line. From the time I entered it is up 57c.