Wednesday, January 16, 2008

Jimi Hendrix, "Voodoo Child" (live)

I Love Limit Orders & Robots

For months, really since the beginning of the Hybrid, it has been clear that market orders are a dead end. Not only do you incur larger fees when you use them, but you can pretty much guarantee a bad fill.

With my old company, I was perhaps a little too used to my software and I had a hard time changing my habits of entering market orders.

Since I've been forced to use new software, I set up hot keys with limit orders and have worked to use them almost exclusively. Incidentally, on Friday of last week when I lost over $600, my limit orders were disabled and I had to use market orders all day. I'm not saying that's the only reason why I got smoked, but I bet it played a small role.

I'm finally getting used to limit orders and how to trade with them.

Okay, now about my day. I was having a very slow morning, but also a profitable one. I was entering small trades and consistently making right trades. I was up a couple hundred dollars but more importantly, my win/loss ratio was excellent. That's just the type of thing that builds confidence.

Anyway, that's when I noticed the massive carnage taking place in the fertilizer stocks.

After trading so conservatively all morning, I was loathe to take risk and lose my hard fought profits, modest though they were. However, I also realized that I'm not going to make money taking 15 cent trades with 100 and 200 share lots.

So I seriously fought myself but entered an order to buy 200 shares of AGU and was filled at $61.61. The stock ticked lower. However a brief scan of the other ferts showed them all bouncing. I sold 100 shares at $61.44, but then bought 300 at $61.36 for a total of 400 shares. As it turns out, the low of the day was $61.26.

I sold 200 right away with limit orders up in the $61.70 range. And when the stock pulled back again without breaking the low, I added another 400 shares at $61.52. So I had 600. I sold most up at $62.20 before it pulled back below $62 again. I missed the run from $62 to $64, mostly because it ripped on pretty weak volume.

Anyway, it was a solid trade, I made $490 in the stock. It was the first volatile trade I've been involved with since I moved to my new company. Also, I finally added some shares. Trading with 100 shares is fine, but you really need to catch big moves for the dollars to add up.

My favorite trade of the day was in PCR in the afternoon.

I was watching the futures bump against a trendline that had been in place for the last couple of hours. Volume was building. PCR had been in a tight base since noon. When it painted red candles, it did so on low volume. So I thought, should the market pop he was a good candidate to buy. I picked it up at $37.25, right before it ran a point.

Today I focused a lot of volume. Back when you could read quotes, "tape read," traders relied on bid and ask sizes to tell them where the volume was and where it was going. The Hybrid Market has rendered that strategy dead. So watching the volume bars has become that much more important. It's really a traders only indication that there is interest in the stock. PCR showed good volume the entire move. That gave me the confidence to hold.

Anyway, this has been a rather rambling post so I'm just going to let it die. I feel good about having a good day. It was my first in over a month.

Here's the stats:

P&L, $1267
Best, AGU, $490
Worst, PEG, -$102

19,400 shares traded.
21 stocks traded, 15 winners, 6 losers.

Virtual Office, $7324, Dow, -34.95, 12,466.16.

Misstrade, $5368 on 8800 shares traded.
Evolution, $1287 on 30,000 shares traded.
Me, $1267 on 19,400 shares traded.
OBAT, $607 on 12,400 shares traded.
Denarii, $198 on 1800 shares traded.
Wincity, no trades.
Retardo, no trades.
Akalawoo, no trades.
Dehtrader, -$1403 on 430 shares traded.

What a crazy day. I mean, this market reminds me almost exactly of the market we were trading in August.

In the morning, even though the indexes weren't showing it, stocks were acting like crack addicts. Check out the fertilizers, the coals, the metals... heck, even the utility stocks were volatile.

Volume was great, as we traded over 2 billion shares on the NYSE. The VIX rose, although, once again, not as much as I'd expect. It's currently up .77 on the day at 24.11.

Anyway, like I said yesterday, once volatility on this scale enters the market, it doesn't just leave. In August, we got the rate cuts and then everyone went on their summer vacations and September was pretty lame. Here, in January, we'll get the rate cuts, but I think people will be sticking around.

Should be a fun winter. A trader can hope, right?

The Education Of Ben Bernanke

Huge NY Times magazine article.

Clarence, "the rodent of stock market volatility" Returns!

Morning Articles & A Video

Thank you "Ken Doll in Chief," for the inspriring originality there...

I thought this quote from IBD on buying stocks in this environment was perfect.

“Rather than try to find the one prince among 7,000 frogs, you'd be better off investing your time in analyzing your trades from the prior uptrend. Try to spot recurring errors in your method. In this way, you'll be better prepared when the market turns around.”

Good Morning

Time: 6:35
Mood: Positive