Archive for July, 2008

27
Jul

WHAT KIND OF TRADER ARE YOU- PART 2 “Reckless Rhonda”

   Posted by: Robin    in Articles, Education

Last week we talked about various trading personalities and profiled four characters. No doubt, there are a lot more than four out there. Many of us exhibit bits and pieces of the behavior of each personality. Depending upon our state of mind and our ability to handle the emotional stress at hand, we can lapse into the “Fear and Greed” mode at any time. Decisions that are made when gripped with either of these emotions are usually very bad decisions that we end up regretting.

We are going to delve into each of the four personalities in the next several weeks and see if we can help them be better traders. We’re going to start with “Reckless Rhonda”. You may recall that Rhonda is a person of extremes both in her trading life and her personal life. She likes to make decisions on intuition. Rhonda plunges into things without a lot of forethought. If we look closer at Rhonda, we find that she likes the adrenaline rush of trading. To be blunt, she is a gambler. Sometimes, in her heart of hearts, she wants to lose in order to confirm her negative feelings about her inability to be effective in the stock market. The due diligence that should occur before trade entry is, frankly, not being done because it’s boring to her.

So, how do we help Rhonda?? Well honestly, there may be a more deep seated reason that Rhonda trades the way she does. Maybe, she doesn’t have the patience to research company and market fundamentals. Maybe, she doesn’t know how, but more likely, she just finds it unproductive and tedious. Rhonda has some tools to be a good trader but lacks discipline. If she could develop better habits, there is a chance she could begin to experience success. My opinion is that it would take a monumental effort to change deeply entrenched bad habits and impulsive behavior that has been so evident in her trading up to this point. So, faced with the choice of continuing down the same path of unsuccessful trading, in my mind, she has two choices 1) Quit trading and go to Las Vegas to get the adrenalin rush or 2) “Outsource”. What do I mean “Outsource”? As a trader, you are a business person and as such should have a business plan. (a discussion for another article) That business plan more than likely calls for the trader wears many hats. Successful businesses have specialists with expertise in various areas such as accounting, sales, IT, and marketing. It is fairly evident to me that Rhonda can’t do it all. She needs to outsource the due diligence part of her business plan. Blasphemy you say!? When confronted with the choice of continuing to fail and yet realizing a viable alternative, I think it makes sense to get the help. It appears to me that Rhonda is miscast as a stock analyst. There are several credible subscription websites that offer market and stock analysis.

OK, so we have solved the due diligence part of the formula, what about the adrenaline junkie piece of the story. To begin with, adrenaline and trading don’t go well together. We have already pointed out that world class blunders are made when in that state of mind. Maybe what we need to recognize is that Rhonda absolutely craves the “thrill of the trade”. Once again, I see two choices, 1) Ten years of intense therapy to try and eliminate the negative behavioral patterns “LOL” or 2) accept the fact that “trade thrills” need to be part of the game plan. (Don’t fight the tape) My suggestion for Rhonda is to allocate a very small portion of her portfolio to trade as “Mad Money”. Sorry Jim C.. No pun intended. Most successful traders come to realize the importance of seeing situations as they are and addressing issues head on. In Rhonda’s case, I suggest the situation be seen “as it is”. Don’t avoid it. Adjust, modify and allow a little bit of the portfolio for foolishness. Great traders are never “all in”, they diversify, they scale in and out of trades and they adjust. That’s what we are doing by modifying Rhonda’s approach to the markets. Remember, as mentioned last week, keep a trade journal.

Well, time to head back to Sherwood. Little John told me just the other day he was getting fed up with those Naked Short Sellers so I need to try and calm him down. I’ve learned not to get Little John ticked off. It’s just not a smart thing to do.

Robin

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25
Jul

THE WEEK THAT WAS/ 7/21-25/2008

   Posted by: Robin    in The Week That Was

MONDAY/ 7/21
Today BAC beat estimates, Roche offered to buy out DNA and MRK and SGP delayed their earnings. A solid start deteriorated as the day progressed. DOW down 29, S&P flat and the NASDAQ negative 3.30. Oil was up on threats from Hurricane Dolly and broken talks between Iran and the European Union concerning Iran’s nuclear program. AAPL down almost 10% after hours.

TUESDAY/ 7/22

A weak open on negative guidance from AXP. No economic news today to drive the market. Rallied hard in the last half hour on what appeared to be short covering and momentum trading. DOW up 135 S&P up 17 and NASDAQ up 9.38.

WEDNESDAY/ 7/23
WM had a hard time of it after the bell yesterday with a $3 billion loss. The dollar was up, gold down as oil continued to retrace. Earnings of note, COST guided lower and ETFC posted a .19 cents per share loss compared to the streets’ estimate of .14. YHOO missed by a penny at .09 cents a share. A host of companies reporting after the bell today. PFE, T and MCD had solid reports although BA disappointed. DOW up 30, S&P up 5.19 and NASDAQ up 22.

THURSDAY/ 7/24
F and DAI kicked off the day with disappointing reports. AMZN and LUV came in positive. Existing home sales got hammered and hit a ten year low down 2.6% and the market responded by registering a 283 point loss in the DOW. Final numbers for the day; DOW down 283, S&P down 30 and NASDAQ down 46.

FRIDAY/ 7/25
After hours yesterday, JNPR and NFLX bested their estimates as NFLX guided stronger into the remainder of the year. Durable goods were up .08 vs. a projected loss of .03. New home sales were down and the Michigan Sentiment Report came off the bottom in June. Oil ended the week at $123.26 a barrel. Gold was down over $30 for the week. Dow up 21.41, S&P up 5.23 and the NASDAQ up 30.40.

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25
Jul

Charts for week ending 7-25-08

   Posted by: Robin    in Charts

S&P

DOW

NASDAQ

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25
Jul

THE WEEK THAT IS TO BE/ 7/28-8/1/2008

   Posted by: Robin    in The Week That is to BE

ECONOMIC REPORTS

MONDAY/ 7/28
None
TUESDAY/ 7/29
Consumer Confidence
WEDNESDAY/ 7/30
ADP Employment, Crude Oil inventories
THURSDAY/ 7/31
GDP, Initial Claims, Chicago PMI
FRIDAY/ 8/1
Auto and Truck Sales, Non Farm Payrolls, ISM Index

EARNINGS OF NOTE

MONDAY/ 7/28
AMGN, ANLY, CALM, KFT, SPG, SOHU, VZ
TUESDAY/ 7/29
ANR, AMED, CTX, COH, DENN, LNC, MET, NOV, VLO, WLT
WEDNESDAY/ 7/30
AVP, CAM, CLF, DTE, ESRX, FSLR, FLS, GRMN, MUR, NBL, OII, ODP, OC, PRU, SYMC, TRN, V, DIS
THURSDAY/ 7/31
AET, MO, CHK, DB, EK, GT, GW, MRO, MEE, MA, MORN, MOT, SNY, VCLK, WTW, XE
FRIDAY/ 8/1
BYD, CVX, JAVA

Robin

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25
Jul

COMMENTARY 7-25-08

   Posted by: Robin    in Commentary

The market appears to be consolidating in a trading range. We’ll have to see how the earnings season plays out. The big story is the retracement of oil and the continuing issue with Financials. Stay nimble until the market picks a direction. Make sure that you are hedged on you stock positions during earnings season.

Robin

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19
Jul

Naked Short Selling

   Posted by: Robin    in Commentary

So why has it taken so long for the SEC to address the issue of Naked Short Selling! Patrick Byrne Chairman and CEO of Overstock.com has been a vocal opponent to this abusive practice for years. See press release . It doesn’t take a Rocket Scientist to do the math. When you have more shares shorted than the outstanding float, something must be amiss. Where has the SEC been?? This practice obviously has come to the forefront due to the struggles of FNM and FRE. However, this is not a new problem. Large money concerns can deliberately drive down the share value of a stock for purposes of gain, in effect manipulating the market. This is one of the ways that the small investor is getting pushed around. It’s not right and it needs to be fixed. Robin

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18
Jul

What kind of a trader are you??

   Posted by: Robin    in Articles, Education

See if you can spot yourself (or someone you know VERY well) listed below…

Reckless Rhonda-

Rhonda is an interesting sort, she fancies herself as being a highly successful trader and when she is right, she’s on top of the world. However, when she’s wrong, she’s really wrong. There is no in between with Rhonda and as such, she is prone to large financial and emotional swings. Due diligence is foreign to her, she just goes on gut feeling. There is no consistency to what she does. The bottom line is when she does win, it’s brief and fleeting. She plunges into trades to try to recover her loses and most of the time it doesn’t work out.

Fearful Freddie-

Freddie does so much research that he probably knows as much about the company as the CFO or CEO!. He understands the market or so he thinks. He is an academic sort of guy but he is not a successful trader because he has difficulty “pulling the trigger”. When Freddie does enter a trade, he can’t let it work and he is easily “shaken out’ of his positions if the trade does go the way he thinks it should. As a consequence, he often will see trades that he has exited prematurely end up being winners but he isn’t around to reap the rewards.

Boastful Bob-

Bob is never wrong about much. He has to be right on most subjects. As a result, Bob will refuse to let a losing position validate that he is wrong. He will ride that loser right into the ground rather than admit he was wrong. Finally, he’ll get out because the pain is just too much to bear. He’ll never let you know he was wrong, so he’ll suffer the internal conflict of the loss alone. Bob finds it nearly impossible to cut losses or to make adjustments to losing positions. By the way, Bob is a big time loser in the stock market.

Greedy Gerdie-

Gerdie stayed at the party too long. Many times she had a nice gain but she just wanted to milk it for a little while longer and “BAM” the position totally reversed and she not only lost the gain but she ended up in the red. She tells her friends about the one that got away and “if or shoulda” unfortunately doesn’t make us money in the market s. So Gerdie swears that next time “I’ll get out when I have a profit”. Gerdie has now learned her lesson and on the next trade she’s not going to let this one get away so she exits the trade with just enough profit to pay for the transaction costs and the bid/ask spread. Her broker loves her because he’s the only one making money. Gerdie is now losing her confidence and wonders if she can ever make this work.
These are only a few profiles of trading personalities that populate the markets many more exist. What kind of a trader are you? I am going to give you a gold nugget and it may sound pretty basic but what I’m about to say could save you trading career. KEEP A JOURNAL. I t doesn’t have to be a gold embossed diary. A memo pad will do quite well. Date it every day and record your actions and thoughts. You will find it to be very revealing and you will begin to see patterns in your trading behavior.

Well that’s it for now. I hope it was helpful. It’s time to head back to old Sherwood Forrest to rejoin my “Merry Band of Traders”

Good Trading , Rob

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