GLD: semi-live trading

12-17-14

My trigger is based off of 

1) gold is in a monthly and daily downtrend

2) gold is in a daily squeeze

3) gold just had it's second close below the 21 EMA (purple line)

"Nice to have" factors:
1) The dollar has been very, very strong
2) The stock market has been rallying like a bat out of hell

daily chart (I'll try to make these more visible in the future)

monthly chart

Today I sent in the order for a February delta 60 put with a strike price of 120 for $670. I didn't try and get filled at a higher price because in this case I didn't want to be a dick for a tick. I just sent in the order for a price I was confidant I'd get filled at.

I was filled while I was at work and GLD dropped .68 cents which gave me a gain of $42.50. The trade looks really good right now but it could easy have a bounce so I'm mentally prepared for that.

My rules for exiting:  I'm only willing to lose half of the premium of my option, or two closes above the 21 EMA, whichever comes first.




UPDATE 12-18-14

Well we saw a bounce today, but the trend still looks fine since it didn't cross the 21 EMA (purple line). It wasn't exactly what I wanted to see. However, since I have my rules in place, I knew that no matter happened I wasn't going to have to worry about getting out of the trade so I didn't have to watch it at all. I lost 82.50 and now I'm down 40 dollars overall. Really, that's just how trading is. Will I lose more money? Tune in to find out!

UPDATE 12-19-14

Today was a typical lazy Friday. Nothing happened. It went down a little bit, I made 10 bucks so I'm negative 30 dollars on the trade. So far the chart still looks great but we'll see what happens on Monday.

UPDATE 12-22-14

Today gold did exactly what I hoped it would. It had a nice meltdown as shown on the 15 minute chart above. I made 187.50 today, which brings overall profits to 157.50 dollars. Could it have a bounce and erase all of my profits? Absolutely, but the chart looks beautiful right now and hanging on until it hits my target.


Daily chart

I calculate my target by taking that last high to low (on a higher time frame like the daily chart) and the target is 127.2% of the last move. I'm looking for gold to get down to about 1088 dollars an ounce.

UPDATE 12-23-14

It was another quiet day, gold had a slight bounce. It's typical for a bounce after a big down over, and the fact that this one was so small is nice. I'm expecting the trend to continue. Minus 25 bucks today, overall positive 132.50

UPDATE 12-29-14

Last friday, gold had a big bounce and it indeed erased all my profits and left me 40 dollars in the hold. However, it hadn't breached the 21 EMA and thus didn't trigger an exit. Today, it went down a dollar and left me positive 50 dollars. It's been kind of a roller coaster, but the downtrend is still intact.

UPDATE 12-31-14
It really has been a roller coaster ride. Trading this way is much more aggressive and you can feel every up and down move. Tuesday, I lost over a hundred dollars, and today I made it all back. The gold futures daily chart looks like it just fired short, so it *looks* good for a nice continuation of the downtrend, but I've said that before. You can see why learning to trade is very difficult, and that's why most people lose money. If the volatility doesn't get you, lack of patience very well might. I may not make money on this trade, but I've seen this set up make money in the long run.

UPDATE 1-7-15

I got out on the 7th, the day after it closed above the 21 EMA for the second time. I suspected the trade might go bad because the global economy is weak and usually that kind of thing is bullish for gold. The thing is though, is I've learned through hard experience that you can't second guess your trades based on the news. All you can do is follow the set ups that have probability on their side and ignore the news. 

I lost almost 200 dollars on this trade. I'm actually glad that I was able to show case a losing trade, to showcase what trading is actually like. Losing money like this would probably give most people axiety, and several years ago, this would have done the same to me. I barely noticed at this point in my life. That's because I've had many, many trades that have lost money, and yet I've been profitable the past two years. The first year of trading was the only year I lost money because I didn't know what I was doing and didn't have any of the psychology down. 

I really liked doing this, and I want to continue to post my trades in a semi-live environment. I'm making plans to build my own content management system since Blogger is not that good. 

See you next time. 

An oily update

Last time I showed the monthly and daily chart. I said some stuff about a oil looks like it's going to get killed blah blah blah, you can go here to read my first post.

Monthly chart:

Daily chart:

Updated monthly chart, squeeze has indeed fired short and oil is puking.

Last time I said once it gets up to the yellow or purple line, that's the opportunity to short. The purple line is the safest, and the second arrow shows the point where it reached this level.

From there it's a matter of figuring out where your target is, but also where to get out if necessary. There's many different methods for this but this is what I do. If the trade goes against me, the simplest method, and also my favorite, is to get out when there are two closes above the purple line. It offers a hard and fast rule and also forces me to allow time for the trade to work out. They don't always work out perfectly right away.

In terms of a target, my favorite method is the use of a fibonacci numbers. I could calculate it out all by hand but luckily we have computers.

I simply find the previous high and the previous low and my target is 127.2% of the move of the previous move.

At this point the high probability move is over and I'll take off the majority if not all of my position.

There's still a decent chance that it could continue to 161.8% (the golden ratio).

It's unusual for something to completely blow past these levels. Oil is currently being taken out back and shot, but it's good for consumers and probably for the US economy.

I'm going to go drink some root beer.

Why is oil so crude?

Did you notice cheaper gas prices at the pump? That's pretty neat!

I'm going to explain why this is all happening. Actually no I'm not, because I don't know what's happening. There's rumors about a Saudi price war and that's all I have to really go off of.

See the thing is, trading is not about keeping up to date with current events. We're more concerned with the why. Allow me to elaborate. See this?

 

That is a chart of crude oil futures, and each bar represents one month. You can see that lately crude oil prices have basically jumped off a cliff. Hooray for the consumers! That's bad for oil traders right?

Wrong! Here's something that a suprisng amount of people don't know. In fact, it's something that blew my mind when I first learned about it. You can make money when a stock, future, or whatever goes down. At some point you may hear the term "shorting", or "I am short oil". That's what the term is referring to.

 On this chart I have a couple of indicators. The arrow is pointing to something called the squeeze which measures how much energy the underlying asset has built up (or you could say volatility contraction if you wanted to sound fancy). When there's red dots, it's going to make a big move one way or the other. You can see that this month, the red dots turned green. We have to wait until the end of the month to be sure, but we're potentially seeing a "squeeze" firing short. If this is the case, we will continue to see lower prices in oil, and therefore, gasoline, for the next 6 to 8 months.

Hooray! How to trade this? Well, let's look at a shorter term time frame. Introducing the daily chart:

  There's different ways to "short" oil. But you don't want to even consider getting short oil until it has either reached the yellow or the purple line (exponentional moving averages, or something).

Anyhoo, you can pick how aggressive you would like to be, depending on your goals and personality. The conservate way to trade would be to only get in - and I mean ONLY GET IN - when it has reached the purple line. At that point you could sell a "credit spread". You would position this spread thing above the purple line. Now all that has to happen is the stock has trade either: slightly higher, sideways, or down and you make money. It's only about 10 to 15 percent return but you'll live.

If it doesn't do either of these things, well that's when you have to react with steel nerves and make decisions based on your predetermined plan and not your emotion - that's what separates the pros from the not-pros.

 If you wanted to be very aggressive, you could wait until it only reaches the yellow line, and then but a "put" which goes up in value when the underlying asset goes down. In this case, it HAS to trade in the correct direction. Even if just sits there, it will lose value. That's our little friend, time (theta) decay. But you could also make something like a 100% return.

 You can construct trades between those two extremes, and there are many, many ways to put together a trade.

 And there you have it. That wasn't so painful.

Current Trading Plan

ADX momentum

Requirements:

ADX indicator is 35 or higher

Daily chart

8 period stochastic needs to close above or below 40 or 60

Stock should be over 50 dollars and volume should be at least 125,000

Trade is valid when it breaks the high of the low bar (vice versa).. Enter immediately.

Can scale in. Get in when it’s still going down (up) and add when it breaks the high of the low bar (vice versa)

Trade manament:

Stop loss is the previous days lows. Trail stop accordingly.

When the position doubles, take half off and use a trailing stop on the rest.

Pay attention to fib levels. (if it breaks high of the low bar, 90 percent chance it will reach 127.2 and 60 percent chance it will reach 161.8)

Use 60,40,8,3 stochastics

NOTE: Trade is also valid if ADX is 35 or higher and fib pulls back to 50%

ALSO: If stock is at 52 week highs and gets a big flush down, it will likely stpend time chopping it’s way back higher. Once it pierces 78.6 fib, there’s a 90 percent chance it will continue to 127.2 and 60 percent chance of 161.8. You need to have ADX over 35 or a squeeze.

Squeeze

Requirements:

In an uptrend, momentum indicator should be above 0, downtrend, below 0.

Buy ITM and OTM options. For ITM options, only risk half of the premium. OTM options don’t need to have stops, just let them run.

If OTM options are bought, spend the same amount on them as the ITM options.

Look at B and C waves, if they are above zero, buy a partial position immediately. When the A wave crosses, add the rest of the position.  

NOTE: think or swim doesn’t have B wave, but that’s ok

Use 8,21,55 exponential moving averages.

For OTM options, premiums should ideally be a dollar or less if possible.

Note: if trading ETF’s, look at the underlying futures

Follow this checklist:

1)      Is there a squeeze?

2)      Is the C wave above 0?

3)      Is price above the 21 period EMA?

4)      Is the next time frame up bullish (weekly if original chart is the daily)

5)      Are the shorter waves (A) above 0?

If trade meets all these requirements, enter with a full position. If 4 out of 5, enter with ¾ size, if it meets 3 out of 5, enter with half size. If 2 or less, pass on the trade.

Trade management:

You can use the TTM_trend indicator. Stay In the trade as long as the bars are still blue and exit when there are two red bars in a row.

Trade shouldn’t end the week below the 8 EMA.

Exit if it closes below the 21 EMA twice.

Note: this is valid on the 5, 15, and 60 minute charts as well.

Note: only buy OTM options when there are red dots in the squeeze.

20 day channels:

If the stock is above the 55 EMA, buy pullbacks

If the stock is above the 55 EMA and the 2 period RSI is oversold below 5 and it’s at or below the 20 day lows, it’s a beautiful entry, enter aggressively.

Note: if the stock is below the 55 day, but the 8 and 21 EMA’s are above the 55 still, it’s still ok for a long position.

Early this year, my 'mentor' whom I've never actually met in person made a million dollars in one day. I was able to watch it real time via the daily chat room I attended regularly.

That caused me to change my perspective and I made a goal to make a thousand dollars in one trade. It was a month or two that I came very close - I made almost 900 dollars in one trade.

 I did fall short but still I couldn't complain too much, ya know? Anyway, John Carter (my aformentioned 'mentor') says to take time off trading once you make a big trade like that. He likes to spend some time at home where his wife makes him take out the garbage and he can regain some humility and perspective.

Anyway, I didn't do that and became a little overconfident and I loaded my account full of positions and lost three quarters of my profits!

As you can see, learning how to trade means learning hard, painful lessons.

 My biggest draw down (616 dollars) came from that period as well as a lot of other positions but I don't remember which ones they were).

Here's my trades this year (keep in mind I did take 4.5 months of the past 8 months off):


AAPL APPLE INC ($268.00)
AMZN AMAZON.COM INC ($13.00)
BIDU BAIDU INC ADR ($616.00)
BIIB BIOGEN IDEC INC ($116.00)
CELG CELGENE CORP ($153.00)
CF CF INDUSTRIES HOLDINGS INC COM $53.00
CMG CHIPOTLE MEXICAN GRILL $878.00
CREE CREE INC $51.00
DDD 3 D SYSTEMS CORP ($23.00)
FB FACEBOOK INC $32.50
FXY CUR SH JAPANESE YEN TRUST COM ($50.00)
GCI GANNETT INC   ($15.00)
GLD SPDR GOLD TR GOLD SHS ETF $135.00
GOOG GOOGLE INC CLASS C $45.00
IBM INTL BUSINESS MACHINES COM $105.00
INTC INTEL CORP $128.00
INVN INVENSENSE INC $80.00
KBH KB HOME INCOME $51.00
NFLX NETFLIX.COM INC ($187.00)
PHH PHH CORP COM ($128.00)
QIHU QIHOO 360 TECHNOLOGY CO LTD COM $399.00
REGN REGENERON PHARMACEUTICALS INC COM ($10.00)
SCTY SOLARCITY CORP COM $58.00
SLV ISHARES SILVER TRUST $53.00
SPWR SUNPOWER CORPORATIONS COM ($75.00)
SPX S&P 500 INDEX $390.00
SPY SPDR TR S&P 500 ETF TR ($350.00)
TLT ISHARES 20+ YR TREASURY BND ETF  $171.00
TSLA TESLA MOTORS INC $5.00
USO UNITED STATES OIL FUND LP EXCHANGE-TRADED FUND $49.00

Total: $679

Middle of February

If you read my blog post last month, I told the tale of the January and it’s uncooperativeness. I had a pretty bad month and I stole just about broke even. That shows to me that I’m on the right track. If it’s one thing that I’ve learned, it’s how to limit losses.

The next challenge is how to manage winners. I believe this is the skill that transitions intermediates and novices into professionals.

Gold is an old friend of mine. For some reason, I’ve made easily made more money in gold than any other security. I don’t know for sure the exact number, but I know I’ve made at least a thousand dollars in gold in the past year. John Carter talks about how certain personalities do well in certain markets. I wonder if gold is my buddy. I hope so, it’s pretty cool.

The reason I’m talking about gold is because I want to demonstrate the trade that really made me realize that I need to do a much better job of managing winners if I’m to do this for a living.

Gold was in a nice uptrend, it was plugging along, and it was looking intriguing. Is gold going to see a big move soon? That’s what I was thinking. In my head.

I will refrain from too much detail, but I used one of my favorite setups based on volatility contraction and I made about 300 bucks on it. But the problem was that I didn’t have a plan in place to take advantage of the move in case it kept going.

Some options are more sensitive to the movement of the underlying stock than others. From now on I want to make sure I buy options with lower sensitivity along with my main position, and when the price hits my target, I will dump the bigger options and keep the smaller ones. That way if the move terminates I will have taken off the majority of my position (and therefore risk) but I can still take advantage of any moves higher. 

I’m happy to report that this month so far has gone pretty darn well, despite the problems I mentioned. My account is up about 900 dollars, not counting business expenses(commissions) and educational costs. This has been a great month to make up for my not-so-great January. I'm hitting my weekly goals, and everything is great. For now. 

I’m bound to do something stupid before long, but that’s ok. 

Doobie doobie doo

Welcome.

Ok that was weird. You know, I’m not entirely sure why I do these blogs. I don’t think there one particular reason, but I do it to provide family and friends an idea of what I’m doing because people generally have no idea about this world that I’ve begun to deeply delve into. Another reasons is that I’ve noticed that traders that I’ve learned from talk about how teaching others has been very beneficial to their craft. I also believe that accountability is essential to improvement, and I strive for ways to be accountable.

Speaking of accountability, I want to give an update of my progress. In July I will have been trading for two years. I have improved drastically. It’s really, really exciting. I feel like I’m just now transition out of beginner status. It will probably take me just as long if not longer to transition into full fledged professional. I ended the year strong. I made about 600 dollars in the last 3 months of the year, and with my account size, that’s really not bad for a beginner, especially considering all the many mistakes I made.

This month has been a little disappointing, but I can sense that I’m heading in the direction of professionalism because I have kept the beating myself up and the impatience to a minimum. I have trust in my system and I know I will do better next month. I still made a little bit of money, although I spent it on commissions.
I’ll explain how this month went, to give an inside look into the life of a trader.

I started the year and the month off right off the bat at a loss due to an oil call that had carried over from the previous year. I decided to sell it because I didn’t like what was happening in oil, and I’ve learned that you have to cut losses quickly, not only because it negatively effects your account, but because holding on to losing trades can effect a trader emotionally as well. I saw some opportunities to put on some credit spreads, which are basically low reward, high probability trades. When people are first learning, this takes a little while to wrap their mind around, but I’m basically selling options and I can either buy them back at a lower price, or wait until they expire worthless. With weekly options, I just have to wait until Friday to see if they expire worthless and I keep all the premium. This first week I think I had 3 credit spreads and I bought them all back on Thursday for a profit. That was enough to recoup my losses plus some.

At that point I was feeling pretty good, I was back on track.

The second week was a little more interesting and one where I made some mistakes. I sold a credit spread that was a lot more aggressive than the ones I previously mentioned. Those credit spreads I don’t need to stock to move anywhere, and it could even move against me slightly and I would still make money. This time, I liked the setup and I wanted to take more advantage, and I needed the stock to move a little bit, but I would be compensated better. So to make a long story short, the stock was taking a hit and there was a pre-earnings announcement due out that day. Now from my experience, when a stock is taking a hit before an announcement, usually it rebounds because people realize that they overreacted to rumors. I knew this and yet my emotions took over and I got out in order to avoid taking a hit. The announcement came out and the stock erupted higher. John Carter made a million dollars on the trade, I lost 60. That was a moment where I struggled with patience. But I got over it.

Anyway, this could go on even longer, but I’ll fast forward to the point where I was up 300 bucks on the month. At this point I got a little unlucky, and often in trading you have to deal with bad luck. So I like to do a high probability trade that works out most of the time but has the potential of completely blowing up on you, and so you have to make sure you define your risk and you’re ok with it.

When a company reports earnings, there is a lot of uncertainty in the market. The stock has potential of getting destroyed if the company didn’t do well that quarter, or go up 300 percent if the stock did amazing. Usually though, the stock doesn’t move more than 1 and a half standard deviations. Options are a little trickier than just straight up stock. Not only does price movement effect option prices, but demand effects it as well. What I mean by that is when people are buying options like mad, the options pricing inflates. Around earnings, people are either speculating (not a good idea), or hedging their positions. A trader who understands how options work, and the probabilities can position themselves for a 95 percent chance of success by positioning themselves one and a half to two standard deviations away from the current price the day before earnings There’s always that 5 percent chance the trade will blow up on you, and that’s basically what happened with Netflix and Apple. The stocks both made improbable moves and I lost all my profits for the month. I could have done better to defend my positions, but practice makes perfect. All you can do at that point is get back in the saddle.

The rest of the month consisted of some bone headed trades where I didn’t follow my business plan, as well as some pretty good trades, and I basically broke even. Next month will be better as every month I continue to learn lessons and improve. It takes time to learn this crap, and learn it I will.