4/6/09 - 4/9/09 (Markets closed for Good Friday)

THIS WEEK:

Weekly gain/loss: +12%
Since 3/16/09: +17.5%
SPY since 3/16/09: 12.78%
vs. SPY since 3/16/09: +4.72%


Summary:

My primary intent was to swing trade the financial sector. The goal was to buy and hold FAS or FAZ for a few days, follow the trend, and not waste as much time or money (in the form of broker fees) as I did in the previous few weeks.

I bought FAS on Monday; the buy was too impulsive -- it seemed to be on an upward trend, but it was a short-term movement that topped out soon after I opened the position. I should have waited for a down leg; also, I didn't really have a strong theory about the bulishness/bearishness of the financial sector. Ultimately, it was a poor entry point.

Thereafter, for the next 2 days it continued to drop, bottoming at -10%. (My loss threshold was -15%, based on the previous week's maximum drop.)

On Thursday, however, I was extremely fortunate: FAS spiked 40%, a practically unprecedented gain. (WFC surprise earnings release.) I set a tight VTSO (my first attempt at this) at -.15/share, which was based on the day's biggest drop. But, once again, the stop was one cent too high. My position was automatically closed in the middle of the rally, leaving me with a 12% gain, but missing out on an additional 10% gain. Again, this was partially due to not having a strong theory about whether FAS would continue to rise.

Ultimately, I wanted to close out by the end of the week, and am happy to take even reduced gains.

Pros: Patience pays off; VTSO mechanics proven to work fine
Cons: Need to have stronger theory before buying; need to find a better entry point; need to set more of a buffer on VTSOs



NEXT WEEK:

Events: Bank earnings (Tue: GS, Fri: C)


Intended plays:

1. Financial trends (FAS/FAZ)
Theory: Bearish at start of week; bullish as week progresses
Why: Monday will retrace some of Thursday's big gains, but the bank earnings will be positive again. (I am betting that government intervention and M2M will give banks a boost in reported earnings.)


Goals:

1. Be clearer about theory before buying/selling
2. Find better entry points
3. Set better stops


Strategy:

Wait and see on Monday; look for a good entry point on FAS. Next week is a risky one, as the earnings could be surprising in either direction. Be prepared to exit FAS with a loss if necessary. Keep a close eye on the news. Because the earnings could be positive or negative from day to day, it may be necessary to switch positions more than normal next week. Ultimately, volatility is to be expected.


COMMANDMENTS:

The Major Commandments:
1. Never be too confident in your own ability, nor be overly exuberant. Always retain a measure of doubt.
2. Always understand your own position, and be sure why you’re taking it.
3. Always understand the underlying issues of the instrument you’re trading, no matter how complicated.
4. Always respect the trend, no matter how irrational.
5. News > Fundamentals > Technicals.
6. Always use a stop order, and stick to it, particularly in a downward trend.
7. In an upward trend, always lock in your profit via carefully-placed stop orders. Any profit is better than no profit. Be willing to take less than the maximum.
8. Never buy at a peak or a resistance point. Never sell at a bottom or a support point.

The Minor Commandments:
1. Always be wary of end-of-day selling. On Fridays, beware of end-of-week selling.
2. Thou shalt stymie the greedy hands of the IRS and the brokerages.