Monday, June 18, 2007

Experiment, Part 3

(Again, please forgive the sloppy post. I will clean it when I have more time.)

So, what am I going to do? I have to change. And I know of no better way of doing that right now that taking my "experiment" from today and applying it to real life tomorrow.

So, I am going to go into trades with the idea of buying or shorting them for THE DAY. If by 4pm I am still in a position I will re-evaluate and see whether or not I should hold it another day.

I will have to increase my loss limits a bit. I can't expect to buy a stock and have it trade in my favor right away anymore. Normally, I don't like to lose more than $100 on a bad trade. This assumes a position size of 400-500 shares. That's my average. So I was looking to keep my risk to .25. That just rarely happens anymore.

Not one of my trades today that would have made me money had I bought (or sold) and held to the end of the day went more than 50 cents against me (except TNH, but he's a freak). The losers all moved more than a half point from my entry.

Also, that first half hour accounted for some of the wildest swings in the stocks. In the past, I loved wild swings... not anymore. Straight up and down with no easy way to get out of positions is not a recipe for making money. So, for the first 15 minutes of the day I will not enter positions and I will be very careful to enter any position before 10:00am.

I will buy or sell stocks and give them 50 cents from my entry. If I am correct in my entry, and in a good position I shouldn't have to endure much more pain than that.

I know many people use percentages and stuff to identify loss levels. I may get there, but for now I'm sticking to what I'm used to, and that's identifying loss levels based on real dollar amounts. But I'm open to suggestions.

After the first hour or two of trading, when I have entered a bunch of positions I'm just going to set my stops and leave. I need to break the habit of trading in and out. I think I can only really do it in this way, cold turkey, by walking away. My wife, who used to be a trader, is going to watch them (just in case anything crazy happens) and call me if necessary.

We'll see what happens. It's an experiment. I'll try this tomorrow and modify it as I go along.

It's just like starting over!

Experiment, Part 2

(Excuse, in advance the somewhat rambling post... it's been a long day and I don't have time to edit much).

My little experiment leads me to believe what a lot of people have told me here for some time; you can't make consistent money daytrading this market. Actually, I think I understood it in February, it has just taken me some time to accept it.

Daytrading, as it existed in the past, is dead.

It has been killed by the Hybrid market and new fees. No longer can you buy or short a stock and easily define your loss limits (within a quarter point), place a stop there and do well. Things just whipsaw too much (perhaps exacerbated by the "sweeps") and there are simply too many pockets of illiquidity to trade as I once did. So you end up with a lot of losers because stocks chop outside of your loss limits too easily. They trade too loosely too often.

I'm not saying it's dead for everybody, I know there are still some people making good money, but it is dead for me.

I have tried to adapt. In the past, I never touched Limit orders. No one I knew did. If you wanted stock, you went market and you normally got a decent price. When you wanted out, you sold at market or your stop was triggered.

Now, you simply cannot trade with market orders. You just really don't know where you are going to get filled. You can't read the tape, it moves too fast... sometimes the quotes update 10 times IN ONE SECOND! This is crazy and I still can't imagine who it benefits. But for a market-order-using-tape-reading-day-trader it has had disastrous consequences.

I thrived in the market between 2000 and the first half of last year. Back then, in the pre-hybrid world it paid to get involved with a lot of positions. You hoped to have 65% winners at the end of the day with small losers and one or two good winners. Now, it's hard to take a "small loser."

Take CNH for example. It's a perfect example of what happens to me over and over again in the hybrid market. It was my first trade of the day:

I bought 400 shares at the opening price, 52.23. It traded up a little and so I bought a couple hundred more at 52.33. But, by 9:32 or so, the bid on the stock dropped down to 52 and only 100 shares were showing there. I had 600 shares. If I chose to sell, I'd get 100 shares at 52, and then the rest, well, who knows where!

So, seeing no rhyme or reason behind the move, I hesitated, hoping that the whip down would lead to a quick whip back up and I put a sell stop for my shares at 51.75. The stop was triggered and I was filled at 51.49 and 51.52... so I lost a straight 80 cents on 600 shares.

Back in the day, I NEVER lost 80 cents on a trade, especially if I was holding 600 shares. I'd rarely lose over 25 cents! But these types of losses in CNH are all too common for me now.

And really, I don't know how to make them stop. So, I can't make these trades anymore...

An Experiment, Part 1

My daily post today will be different from daily posts in the past.

One thing isn't different, I lost money again.

Here are the stocks I traded today, in alphabetical order, with my P&L total for each.

AB, -$31.58
AGU, -$130.39
AIT, -$23.24
AMR, -$165.91
ARD, -$3.18
BBY, -$186.41
CF, $81.07
CNH, -$188.74
GWW, -$54.39
HXM, -$117.56
KMT, -$27.51
LNN, $76.65
LVS, -$40.46
MON, -$79.88
MOS, 129.67
SJW, -$119.40
TNH, -$271.45
VNO, $131.11
UBB, -$182.81

total (net) P&L, -$1155

Here's the same list. However, this time I just calculated what I would have made in the stock had I stuck with my initial purchase (or sell) and held until the closing price.

AB, $54
AGU, $55
AIT, -$48
AMR, -$290
ARD, $489
BBY, $39
CF, $21
CNH, -$632
GWW, -$215
HXM, $0
KMT, $45
LNN, $59
LVS, -$354
MON, -$35
MOS, $140
SJW, -$13
TNH, $1350
UBB, -$192
VNO, $525

total (gross) P&L, $998

As you can see, had I just made the initial trade, and then held all day, I would have made money today. Of course, I don't think anyone really trades like that. And the results are a little skewed by the volatility of TNH. But even if I took out my big winner and big loser, I'd still be up.

Since this post has the potential to be very long (and I'm short on time right now) I'm going to break it into a couple of parts. Expect more later this evening.

Virtual Office, $403. Dow, -23.41, 13616.07.

Misstrade, $1872 on 6100 shares traded.
Evolution, -$314 on 56,800 shares traded.
Me, -$1155 on 30,200 shares traded.

With only 2 other traders besides myself reporting today, it's hard to get a read on how the day really was. One look at the indexes says it was dull, and choppy.

It's the summer. The tape is quiet, volume is extremely low and traders are on vacation. So it goes.

My daily post may not come until later this evening. Time for a bike ride.