Oct
06
2008

  Interesting Market

I noticed that one of my problematic stock holdings, SRS, was up in weekend trading. So I got up early this morning to follow it in the after-hours market. I made the decision to place a trailing stop order at market open, and it executed in short order. I wound up making over $12 per share profit, although the high for the day was up over $4 from there. But I don't miss the lost profits much, since I had already made up my mind last week to get out of this position at my earliest profitable opportunity.

You see, the stock had fallen over $27 per share during the time I held it. And this particular ETF was supposed to track the inverse of a sector, but it wasn't performing to my expectations given the underlying market. So when I noticed it was up over $39 from its recent low I took the opportunity to realize some profit and get out. I will now look for another investment that may more reliably give me the sector exposure in which I am interested.

I think in 2009 I might track the hours I spend analyzing charts and industry reading as well as the hours I spend in front of my trading software following the market preparing for individual trades. I'm curious to find out what my hourly earnings are.

Annualized, I'm managing more than the income that I earned at the last job I had before I got married. It's a fairly big job, and especially important since we're essentially retired since Terry quit his job in June and we're living off our savings and whatever investment income I come up with. But my earnings from pure trades (not counting investments) is probably the equivalent of a file clerk's salary. But I'm not working on it 40 hrs per week. Some weeks I am, but not most. Still, I'd like to quantify it so I can set some goals (or make the decision that it would actually be cheaper for me to take a seasonal accounting position and outsource the investing). On the other hand, I enjoy trading so much more than accounting, that from a job satisfaction perspective a lower income might nevertheless be worth it.

I watched the market go down over 800 points, and thought about whether to buy toward the end of the day in anticipation of a "snapper" rally tomorrow. But while I was online browsing through tiles for our kitchen floor after lunch, the market started its reversal early and wound up down only 300-odd points on the day.

Now, I wasn't anticipating such a significant late-day rally. A small one, sure, but this was significant. I only gave the briefest thought to buying into it, since I think it's unusual enough that caution is warranted. With such a large rebound the same day as the initial drop, I'm no longer sure that conditions are right for much of a rebound rally tomorrow. Which is not to say that I don't think it will still happen, but it does mean that I am uncertain enough that I don't feel the odds are good that I will definitely make money.

I am learning that a trader really does make their gains when they buy, not so much when they sell. I do better when I am most disciplined and only buy when the technical signals are very strong that the security is at a tradeable low. I generally do ok when I buy into an uptrend, but that's riskier since there is a smaller profit window in which to time the sale of those shares. And if I misjudge the top, it's riskier holding those shares through price fluctuations. It's the reason SRS was underperforming for me for so long (well, relatively, even with the delay I only held the stock 74 days). I bought too early, or too late, depending on one's perspective. I bought into an uptrend instead of at a low.

I initially thought that my strategy would involve buying into uptrends rather than predicting highs or lows, but I'm finding slightly better luck when I buy only at short-term reversals. I'll need to crunch some more numbers to see if my hunch about this is correct. If so, I may be a little closer to defining my personal trading strategy. It's a process. I anticipate it will take years to perfect. And by perfect, I mean that it will, on balance, result in productive gains. Even if the majority of trades lose money, if the ones that make money are huge hits, the winning "percentage" doesn't matter. But even there I think I'm leaning toward a strategy that results in a barrage of reasonable gains with a smaller percentage of reasonable losses rather than gains resulting from a few big hits.

Yes, I'll be more systematic in 2009. After a year and a half of trading, I finally feel like I'm moving from the stage of being a clueless beginner to being an informed beginner. Terry's still inconsistent with his support, but with each profitable trade I make he's getting more comfortable with just letting me do my job and not trying to interfere.