Let's Help A Fellow Trader Who Is Down In The Dumps

Several years ago, I read an excellent book on the subject of risk-taking. It was entitled "The Young Millionaires", and it contained the true-life stories of eighteen individuals, each of whom had earned in excess of one million dollars. In fact, some of these people had actually earned many millions of dollars, over and above the one million dollar mark, during the course of their highly successful careers. Throughout the book, the author made many interesting observations about the "law of financial success", but the most important one, was the one which he kept coming back to: namely, although these individuals came from a variety of different backgrounds, and although each had earned their money in a different way, they all shared one thing in common."What was that one thing?" you ask. Simply put it was this - even though everything they owned was riding on the outcome of virtually every major business decision which they made, none of them considered themselves to be taking "risks". The reason they didn't, he went on to explain, was because they were living their lives, "as though it were impossible to fail!" Source, Insight of the day by, Bob Proctor


Reno said...

Interesting concept. However that may be true I would also bet that there's a lot of optimistic people that truly believe they are the best at what they do yet they're not successful. I guess my point is that while an optimistic mindframe is an essential ingredient it's not as if you could will your way to succeed by just thinking it even if you're working your hardest at it. Luck, etc. plays a large role also in my opinion even though we'd like to think it's mainly perseverance etc. Therefore I look at success as basically a numbers and probability game -- if you try enough different things then at some point you'll succeed if you don't go bankrupt before then.I guess the above diatribe is a reflection of my own life and the pain/stress I've gone through to try to succeed in life whether it's creating my own business, trading, etc. I'm not yet successful and I think I've pretty much done as much as I can physically and mentally although one can always argue that you can do more. However I'm just burnt out from chasing the almighty dollar. I'm writing this the first day of my 2nd real vacation I've had in a looong time and even though I'm in a decent place I've never been before and a nice hotel I'm still not happy. Need to find a way to just let go and relax... sometimes good things happen to you when you're not actively chasing it. Sort of like girls -- when you've given up the chase then all of a sudden they're all over you :)Sorry for the long rambling comment...
June 29, 2007 11:11 PM

Active Trader said...
Reno, Thanks for the great comment. It seems as if you believe in everything we've discussed here and your life is just operating on a slightly different time frame than you expected. It's easy for me to talk all this stuff when life is going my way...the challenge is when life seems to be kicking us while we're down. It is these times where it's hard to stay positive. This is why it's so important to drive these qualities into our minds during peace time so to speak. Do you like who you are? If so, tell yourself each day. Sounds kinda corny at times but what a huge tool to have in the toolbox when we breakdown. What are your goals? Have you written them down in detail with a deadline attached to them. If not, they're just great ideas at the moment. Do you pray to God or a higher power that you trust? If so, focus on thanking Him for the great things in life you do have, like the opportunity to vacation. How many books do you read to keep you motivated? Reno, you sound like you have it mostly together and you're at the point where most people throw in the towel and give up. Your character is being tested and you must keep swinging the bat at every pitch...every single pitch. And swing with all your might. You know as well as I do that eventually you'll start hitting them out of the park. Hang in there. Take 30 minutes a day until you're out of this rut to pray and think about what will pull you out of this ditch you're in. Failure is simply a temporary event and tomorrow is a new day. And by the way, I don't believe in luck. Everything happens for a reason. Right now you are becoming a stronger person because of your journey. There's no such thing as a smooth mountain. If you intend to climb up in life you will encounter bumps along the way. The only way you'll get distracted on these bumps is if you take your eyes off your goals. Hope this helps...email me and let's talk more. rich@thestockschool.com. Now go enjoy your vacation. Life always gets better, always.
June 30, 2007 2:58 PM

A Nice Trade To Begin With Next Week

I have been searching for some trades and found a great company in a great sector (oil). The whole set up looks great for a short term options trade. An August $70 or November $70 call option may be something you want to consider. I am not recommending you enter this trade but see if it fits within your trading rules. If you move forward with it, I hope it treats you well. For those who pass on this trade...let's go look for some more.

It's Friday so as always...do something fun this weekend and spend quality time with your family and friends. I know as for my family, the last thing they want to see on the weekend is me digging around in this darn laptop computer. Get out and enjoy your weekend.

Today Ben Calls The Shots

Enough said. Stay tuned at 2:15 PM Eastern time. The markets will move one way or another.

Not Much More I Can Say About This Market

Here I am scraping the bottom of the barrel on all of my trades and as I sit here futures for the Dow are down 70 points pre-market. I hope some of you have plugged in a few bearish trades lately...I only have one (see pic above). However, there is a chance today could be the ultimate shake off. We could pull way down throughout most of the day and then bounce right back up to a positive close. If we don't do this then I believe most hope is gone for the bulls. As I'm famous for saying, "Time will tell". I hope you all are having a great week so far.

Economic Releases This Week

Live As Though You Cannot Fail

Several years ago, I read an excellent book on the subject of risk-taking. It was entitled "The Young Millionaires", and it contained the true-life stories of eighteen individuals, each of whom had earned in excess of one million dollars. In fact, some of these people had actually earned many millions of dollars, over and above the one million dollar mark, during the course of their highly successful careers. Throughout the book, the author made many interesting observations about the "law of financial success", but the most important one, was the one which he kept coming back to: namely, although these individuals came from a variety of different backgrounds, and although each had earned their money in a different way, they all shared one thing in common.

"What was that one thing?" you ask. Simply put it was this - even though everything they owned was riding on the outcome of virtually every major business decision which they made, none of them considered themselves to be taking "risks". The reason they didn't, he went on to explain, was because they were living their lives, "as though it were impossible to fail!"

source: Bob Proctor

A Step In The Wrong Direction

Well the week has come and gone. For the straight up bullish traders it wasn't great. We need to keep a close eye on the markets as we near this line in the sand. Today we took a big step in the wrong direction. I'm in about six trades right now that all pulled back today but I had some comfort in seeing them all stay within support. The ones that were close to support only pulled back a little bit which makes me confident the support is strong. My gut feeling is we're doing just fine but I will still trade by my rules. If support is broken...I'm out. Hopefully we get some nice strides next week. Also, earnings season is right around the corner so if the market is strong it will show through the earnings releases. At that point the proof will be in the pudding. Don't forget to start watching for earnings release dates before you enter any future option trades. Have a great weekend!

Dow Setting Up Double Top Formation?

Take a close look at this chart of Dow Jones Industrial Average. We could possibly be setting ourselves up for a double top formation which is a bearish signal. A signal most of us don't want to see.

A double top occurs when a stock price goes up, hits a similar price zone twice and then retraces. What confirms this formation is when the price falls below the bounce point in between the two tops. In the case above, the stock price (index price when not using an actual company) dipped down to 13,275 before heading up to its second top. So, if we fall significantly through this 13,275 mark we have confirmed this formation and could be in trouble for any further bullish plays. As we near this line in the sand we may want to dust off the old bearish toolbox and start oiling up those tools just in case.

Don't panic yet. In fact, don't panic at all. Just be ready to shift tactics if need be. This is the glory of trading options...we don't care which way the market goes. However, it's nice to have an idea.

Dream Big

I have always been a huge believer of having big dreams. As human beings we must encourage ourselves to dream. By dreaming I mean taking the time to envision or picture ourselves having or living the life we would love to experience. When we start to dream we must slow down and let it happen and encourage the thoughts to flow. We must not be quick to move on to the next thought once we realize we're just dreaming. This is where people cap their potential. All great successes were at one time just a dream. There are other necessary ingredients to bringing our successes to life but I would call dreaming the first and largest. I will add that I think a solid goals program is the backbone of the whole process. A goals program is what will move our dreams into reality but that's a whole other topic.

I get excited and my ears perk up when I hear conversations or articles about dreaming. I ran across the topic in a blog that I frequent called Afraid To Trade so I had to chime in. Take a look at what Afraid To Trade had to say about the topic. He points us to an interesting book too.

Now go dream big!

Housing Still A Long Way To Go

Construction of new homes fell in May as the nation's homebuilders continued to struggle with a steep housing slump that has been exacerbated by rising problems with mortgage defaults.

The Commerce Department reported Tuesday that construction of new homes and apartments dropped by 2.1 percent last month, the poorest performance since a huge 13.9 percent plunge in January.

The May decline was in line with expectations and reflected weakness in the South and West, which offset construction gains in the Northeast and Midwest. The decline, which followed small gains in April and March, left construction 24.2 percent below the level of a year ago.
Construction of single-family homes was down 3.4 percent last month while construction of apartments rose by 3.1 percent.

The problems in housing reflect the end of a prolonged boom period in which sales of both new and existing homes set records for five consecutive years. When the boom ended in 2006, builders were left scrambling to deal with record levels of unsold homes.

The inventory glut has been worsened in recent months as buyers who stretched to purchase homes during the boom years are now going into default at record levels, dumping more homes back on the market.

The latest survey saw builder sentiment in June fall to the lowest level in 16 years, since the severe housing downturn in 1991. Builders have been worried about the glut of unsold homes on the market, the rising defaults and now rising mortgage rates as central banks around the world have been raising interest rates to guard against inflation. source: Yahoo

Down But Not Out

I wasn't going to be surprised today if we saw a down day in the markets. According to indicators, we still have some room to run to the up side. However, if you look at the recent upward stride we've taken, it would be somewhat expected to see the market make some attempt to catch it's breath. The only thing I don't like about the market taking its breath here is the risk of a double top formation. I would prefer we bang out one more positive day to get above resistance or if we must slow down then simply having a couple flat days would work too. Since they didn't ask me for my vote my only choice is to sit and watch. So let's grab some popcorn and wait and see.

Economic Releases This Week

Technical Analysis

Technical analysis…a key ingredient in picking your next trade. There are many ways to skin a cat but I have run across very few successful traders who don’t have a good system using technical analysis. In fact, instead of posting a whole article on this topic I am just going to point you to a fellow trader who I don’t know personally but love his approach to technical analysis. I say I love his approach because of all the reading I do his style is one of the closest matches to my own that I have found. And to top it off, you’ll find many other valuable pieces of information and other strategies to help you take your trading to the next level. Go check out the blog: Afraid To Trade.

Three key tools I use in my technical analysis process that have served me well are MACD, Stochastic Indicator and Moving Average.

Reducing Risk On SLB

We've had a nice run on the markets here lately to include our recent pet stock Schlumberger. As you can see in the chart above it's already pretty extended which means we've made nice money right? Okay, as a result, what I did was sold a July call option to reduce my delta (exposure) on the position. My original position is the NOV 85 call with a current delta of around 50 and I sold the July 90 call which had a delta of around 25. When we sell options, we get a negative delta so I had a 50 delta and sold a 25 delta which leaves me a new delta of 25 instead of 50. I did this because I made a nice profit so far on the trade and I don't want to risk losing it, but I also wanted to stay in the position. I'm aware this is getting a little deeper than normal so please ask any questions in the comment section and I'll promptly handle them.

Today is Friday so if we don't talk again, have a great weekend and spend some time with your families. Cheers

It's A Great Day

If you've been following this blog you'll know how excited I am to see the VIX back in it's normal operating zone. Ladies and gentlemen...it's there. Now we just need to hold for another hour and a half to close this way and we're golden. What a great day!

Markets Surge At Beige Book News Release

2:00 PM, Tampa Florida: My DJI chart blasted up about 50 points as we get the results of the Fed's Beige Book report. It used a little more battery life on my lap top computer driving that candle stick up but I'll take it. Is this a bull market? Not so fast...we still have the CPI & PPI reports later this week. It's looking better though.

A Potential Trade

Traders...let's watch this one today. Great company, great chart, almost great timing. Depending on how the day pans out this could wrap up to be a nice entry on Schlumberger Ltd. (SLB). We have 2 choices here (if the chart looks likes this near closing) we can enter then. This would be considered a more aggressive and speculative approach but one I may strongly consider. It still wouldn't have much risk but the confirmation of the price pattern (ascending triangle) just wouldn't be as strong. The 2nd choice is to wait for a close above resistance indicating a better chance the stock will move upward sooner than later.


I will do my best to share with you what I decide to do here.

Just Like Clockwork

Another price pattern that worked out nicely on a 2 day chart of the DJI.

A Good Sign

I just took a glimpse of a 2 day chart of the Dow Jones Industrial Average and found something that looked quite nice. I'm sure a lot of day traders chimed in on this one. Let's hope it's the true beginning of an uptrend. Don't forget though...fear is high right now so these swings are expected.

Storm Warning!

Fellow traders. It is simply going to be difficult to trade with the VIX bouncing around like this. If you don't have a strong stomach for watching your portfolio make big swings then I'd encourage you to scale back until we can get this VIX back into the green areas as shown above. This time in trading is like when they flash storm warnings at the bottom of your TV. They don't tell you you're going to die but they caution you to be extra careful because you could get hurt. They tell us to stay inside (keep positions small) and wait out the storm (wait out the VIX).

Stay tuned to this blog for more alerts.

Great Advice

"I've learned that tenacity and passion trump analysis and, in many ways, resources."

-- David Rose

"Circumstances may cause interruptions and delays, but never lose sight of your goal. Prepare yourself in every way you can by increasing your knowledge and adding to your experience, so that you can make the most of opportunity when it occurs.'"

Mario Andretti
Auto Racer

Easing Back Into The Market

Alright, let's slowly drift our way back into some things here. I have a couple of trades left over from before the pullback and am now going to start building back up the portfolio. Tomorrow is a decent day for economic releases so if we drive through those okay I think the rest of the week could be quite nice.

Here we have a trade I bought some October 85 call options on. I went slightly out of the money here because the options are obviously cheaper and I can see this stock easily passing the $85 mark if its trend continues. If the stock goes against me immediately, my risk is less due to my position having a lower delta. I don't always recommend going out of the money but it seemed to be the best solution here. Let's see what happens.

Economic Releases This Week

What The Market Will Do Next

No way...I'm not going there. Far be it from me to say what will happen next. The market makes moves like this only a few times each year which means I've only experienced a small handful.

With that said, I do want to point out above, a chart of the DJI that shows an eerie similarity between this weeks movement and the activity leading up to Feb 27th when we experienced a pretty hefty pullback. Notice the small up day directly after the big down day. Then look what happened. My overall stance is mostly in cash until I see some trend. That could be either way as far as I am concerned. The only reason I am mostly in cash is due to my positions breaking support yesterday. If you have positions still working, I would not use the markets activity as a reason to exit. Maybe tighten up stops a little but overall I would stick to your original exit strategy which hopefully was made pretty clear before you entered the trade.

How Long Before I Am A Profitable Trader?

I read about this topic so much on other blogs comment sections. It's kind of sad and exciting all the same. There are a lot of people out there wishing to make it as a full time stock trader. You can do it but most won't make it and here's why. Most people will get burned one too many times and will throw in the towel. I don't know if we can prove the statistic but many experts say that most people quit about one percent short of achieving their goal. If they would have just swung the bat one more time, knocked on one more door, made one more phone call...whatever the case is, they would have realized enough success to keep their spirits up for many more rejections. Finally, they would have been a success story.

"You give 100 percent in the first half of the game, and if that isn't enough, in the second half you give what's left." -- Yogi Berra

You must first believe! I believe this is the biggest ingredient to any success. Believe with all your heart that your goal will come to pass no matter what the obstacles and it will. And there will be obstacles. If you trade the stock market just look at your charts over the last few days. My favorite mentor in the world Zig Ziglars says "They don't make smooth mountains". If you're going to climb, you must go over the rough surfaces some how. This is all good news because in the end you will make it and you'll know you earned it. If it were easy the reward be not be as great.

"Life is like mountain climbing. You can be dropped off on top by a helicopter or you can climb your way up. While the view is the same, it's much more beautiful to the person who climbed" Kenny Rogers

Make a decision to succeed. Stick to it. When you get weak, as we all do, seek resources to fuel your inner fire. Read a book, read positive articles on line, call a mentor, do anything but do not quit.

Two great books to get you started:

1. See You at The Top - Zig Ziglar
2. Goals - Brian Tracy

I have made a huge habit of listening to positive audio CD's in my vehicle where ever I go. This has been a huge help.

My greatest motivators:

1. God (prayer). I write my goals down every day and I pray daily and nightly to God the He will guide me in the right direction so that I reach my goals perfectly on time.

2. My family. I am eager to succeed to provide a better lifestyle for my family. My soon to be wife gives me such great support and encouragement. This is vital in any success formula.

3. Positive input. This could be books, blogs, articles, audios...anything to give me more knowledge or add a little pep to my step. Note: It is equally important to ensure we keep out negative input. Nothing can bring you down faster than people who want to rain on your parade.

4. Nature. There is nothing more soothing to me than a nice time spent out in this beautiful world. I love all of it. Rain, sunshine, water falls, beaches, birds...I even get excited about hurricanes as long as no one gets hurt. Spend some time each week winding down in the presence of nature.

Have you noticed that this is all very little about trading? See, if we first get the person right, the goals begin to magically fall into place. If you will agree to never risk more than 2% of your account on any one trade (this means you'll have to be wrong 50 times in a row to wipe out your account) and focus on getting yourself right first...you'll win this game. You control your time frame on becoming a profitable trader.

If there is anyone who would like more help with this area of their life please feel free to comment and we'll spend more time here. There are very few things greater in life than to make a positive impact in the life of another.

Now go dream big!

The Sh!@ Hit The Fan On Wall Street

As much as I hate to say it, I think the chicken has flown the coop. I don't necessarily think we'll go all out bearish long term (lower highs and lower lows) but I think if we're going to have a correction this will be it. We've come down this far, we might as well get on with it and get it over with. Scale back your positions and sit back and watch. There will be no way of even remotely having a clue what will happen now for a few days. The ball has fallen off the building...will it crash or bounce? Only time will tell this one.

This Trade I'm Holding Onto

This stock BHI seems to be holding support quite nicely. It may fall through the cracks if the market sells off even more but we have to obey our rules don't we. For me it's simple...I hold today and if tomorrow afternoon, it's well below support then I'll sell. I bought enough time (Oct contracts) to hold through rocky times if necessary. So for now it's a keeper.

Closed Trade On STLD

I got out of this one too. Took a 52% loss here. This one made me nervous when it neglected to make a higher high. I stayed disciplined though and waited for it to break support which it did today. It's never fun reporting loss after loss like this but on occasion you have to know when to take your toys and go home. That time is now. I will have no problem sitting on cash for a week or so to let the market figure out what it wants to do.

Logged In A Loss

I closed out this trade on CRS for a 33% loss on the options I traded. I intend to share both my winners and my losers with you to see where I chose to exit certain trades. I do this for you to see where another trader gets out and not necessarily where you should get out. Just use my views as a small ingredient used to form your own trading style. Hope that made sense.

Probably will exit a couple others closer to closing. We'll see.

A Classic Descending Triangle

Just something that stuck out to me while looking at a 2 day chart of the DJI. When a stock breaks out of a descending triangle it has a tendency to move at least the distance equal to the widest point of the triangle and within the time period that the triangle took to form. This one happened pretty fast.

This Is Not Good

Ladies and Gentlemen...so far, not so good. I'm all about not panicking until we close like this but I must say I will be watching the computer all day very closely. I'm still confident we can end this here and rally toward the end of the day but after all, it's clearly up to the big money buyers. That's not any of us. So, once again, we're in a holding pattern. Let's look at it again later today.

Oh Those Inflation Concerns

Stocks slid for a second straight session Wednesday after an increase in labor costs stirred concerns about inflation and interest rates and as the yield on the benchmark 10-year Treasury flirted with 5 percent. The Dow Jones industrials fell nearly 130 points and registered its biggest two-day decline since March.

Economic data showing unit labor costs rose a higher-than-expected 1.8 percent raised concerns of inflationary pressures. The Labor Department also reported that productivity waned in the first quarter as expected. The readings did little to alleviate investor concerns that the inflation-wary Federal Reserve might lean toward raising rates rather than lowering them later this year.
The inflation jitters came alongside the European Central Bank's widely expected decision to raise its key interest rate by a quarter of a percentage point to 4 percent. Stocks in Europe fell sharply.

"In the last week or two, the expectation that the Fed was going to lower interest rates in the next six months has been put to the side so the bond market has reacted," said George Shipp, chief investment officer at investment adviser Scott & Stringfellow, referring to a recent rise in bond yields. Yields, which move higher as bond prices fall, have increased as investors have regarded a reduction in interest rates as less likely.

source: Yahoo

Markets Doing As Expected

I hope none of you are panicking too much about the recent pull back in the markets. If you follow the charts they're performing just as expected. If they stall out around these areas shown above there will be more nice set-ups than you can shake a stick at. The key is if we hold these levels without breaking support. Some will have their lines drawn slightly different but what I have illustrated should be the general idea. Let's take another look near the end of the day because closing prices is really what we're interested in. See you then.

A Pullback In The Markets

Well, there is a very short term support line here in the Dow Jones Industrial Average...will it hold here? The market is strong...very strong but the NASDAQ and S&P 500 have a little way to go to the downside before they hit their support. So, we'll have to wait and see. I think we need to head more to the downside before we can comfortably go long in a lot of positions. I'm not necessarily thinking that will happen this week but I think this over extended market has kept many traders on their toes and are probably trading a little less. Some may view today as the pullback but I prefer to see a 3-5% pullback before I get too aggressive.

Bernanke's Comments Cause Market To Stumble

Stocks dipped Tuesday after comments from Federal Reserve Chairman Ben Bernanke and a strong reading on the U.S. service sector suggested the central bank has little reason to lower interest rates.


Bernanke's speech by satellite to an international monetary conference in South Africa Tuesday spurred traders to sell a day after the Dow Jones industrial average and Standard & Poor's 500 index edged up to new highs. Bernanke said in prepared comments the economy will recover from its recent feeble performance, despite a housing slump that "appears likely to remain a drag on economic growth for somewhat longer than previously expected."
Bernanke's forecast of rebounding growth, as well as his assessment that inflation is "ebbing" but remains "somewhat elevated," made it appear unlikely the Fed will lower rates anytime soon, a disappointment for Wall Street.
"The good news is he did say this residential real-estate morass won't leach out into the main economy. The bad news is he's still beating the drum pretty hawkishly on inflation," said Jack Ablin, chief investment officer at Harris Private Bank.

source: Yahoo

Breakout Trades Sometimes Re-test New Support

As you can see in my illustration above, this stock (BHI) is pulling back toward support. Quite often, a stock that breaks out of an ascending triangle will come back to re-test the new support line. When and if this happens, many traders will add to the position with confidence that this support line will hold up. Just remember when adding to a position, make sure you're still trading within your trading rules and not violating your position sizing. For example, I never risk more than 2% of my portfolio on one stock. Most traders never risk more than 1%-5% of their portfolios in any one stock.

Trading Breakouts

It's been a while since we've done a breakout trade. Here's a nice one I came across on Baker Hughes Inc. (BHI). I got in this one this afternoon.

The trade: I looked at this like an ascending triangle. The way this works is the stock will tap the top of the triangle several times before finally breaking through with bigger than normal volume. As of about 2:00 PM eastern the volume was not there yet on this trade but the breakout was evident. What I like about breakout trades is that you can determine a target price by measuring the height of the widest part of the triangle. This one has about an $8-$9 move. Ascending triangles must take place at the top of an uptrend. This stock also has great fundamentals and comes to us from a great industry group (Oil Well Services & Equipment). If you have any questions about breakout trades please ask under the comment section and I'll be happy to elaborate.

I Got In On Carpenter Tech Corp.

Wow...what a great vacation I had in Ocean City, Maryland. My fiancee and her family are from Maryland so we decided to take a vacation back to their home state to go to the beach in Ocean City. We stayed right on the boardwalk and it was a great place and a great time. If anyone in the family catches this post...thanks again for a great time and the wonderful hospitality. You guys are awesome.

Anyway, it's great to be home and back in the market full blast. I did enter a trade we talked about (CRS). I got in Friday afternoon at $135.50. I'm trying to get over this fear I have about entering trades on Friday. I prefer the approach that if it's a great trade then get in...who cares what day it is. I got in the September $140 call option. I went out of the money here because I think the stock could easily move to the $140 range and this will give me a greater return on my money. The futures are trading lower on the overall market this Monday morning before the bell so let's see what happens. Great stocks should ultimately survive even in the big pullbacks.

Economic Releases This Week

A Potential Great Trade

Anyone out there looking to enter some more trades... I found this one from the steel industry that looks pretty good. It's Carpenter Tech Corp. (CRS). I may enter this later today or Monday morning depending on how things pan out. Looks like a great support bounce with great fundamentals. Let's keep an eye on this one.