Watchlist & Stock Picks 12/1/08

Today starts December trading - our last month of the year to raise our return and increase our gains!

Well, the last trading day was Black Friday which seemed a little dead in terms of market movement, in retrospect that makes quite a bit of sense. The Pro's must be on vacation still digesting and the amateurs are out shopping - not many people seemed to be trading given the volumes of the major indices. Nevertheless, we did have yet another small rally day and given the positive news about consumer spending we might have another up day today.

Again, I'm still picking shorts considering the overall market trend.

Alright, let's get down to the goods:

SHORT

My favorites:

QQQQ

BWS

HWCC

The rest:

APOG - if if goes up today, I'm going to take it off the list.

EK

EWO

FARO - if it goes up today, I'm going to take it off the list.

FSS

FUN

ICON - potential for a large drop, the aggressive rally seems typical but I'm still going to be leery of this one.

KELYA

MTH - still trading within support and resistance I'll keep it on the list even though Friday was an up day.

QLGC

Watchlist & Stock Picks 11/28/08

Alright, today is the infamous "Black Friday" when shopping is at its best and worst. The best deals and the worst lines at the register. I really don't know how the market's going to react, to me, logic tells us that when all the dust has settled Monday's trading will reflect how consumers spent on Friday. But on this short trading day we could very well see excitement about consumer spending, thus perhaps making short selling a little precarious. Let's just watch and see - I might not even trade given the unsure conditions.

Wednesday's rally took out all but one that we were watching, not to worry - we've got a few more. I'm still recommending shorts because that's the general trend of the market...Some of these may not be ready for today, but maybe Monday or Tuesday - just watch for the set-up.

SHORT:

My favorites:

BBV

AIB

Others:

APOG - if it makes the set up properly.

BCS - little strange in its recent patterns but I like that it went down on a rally day - show potential for sticking to its trend.

BPZ - if it goes down tomorrow, consider getting in on Monday.

BWS

DELL

DPM

EK

ELNK

EWO - went down on a rally day - perhaps a good sign

FARO

FSS

FUN

GTLS

HWCC - interested to see what

ICON

KELYA

LEG

M

MTH - large amount of room to move

MWE

OHI

QLGC

More coming soon...

Lending Club

Lending Club is a social lending network that allows investors with funds to loan money to borrowers for up to 3 years. This is a great opportunity for lenders who aren't finding good returns at their banks as well as borrowers who are having a hard time getting banks to let loose of their funds. It is similar to Prosper.com however, the two social lending networks vary in a few prominent ways:

Lending Club only accepts 14% of borrowers as it doesn't approve those who have delinquencies, bankruptcies, a number of outstanding credit obligations, or a credit rating below 640 - Prosper.com does. Lending Club makes assessing a borrower's ranking easy by rating them anywhere from A1 to G5 on their rates and fee's table. These ratings help you understand the risk level involved in loaning to particular borrowers and by having so many levels you can easily build a very specific lending portfolio.

Rates for lenders start at a tempting 7.37% for great borrower credit scores and can be as high as 20.11% for very risky borrowers. Much like Prosper.com, Lending Club has a tool that allows you to create a portfolio based upon estimated returns and risk, as well as pre-sort borrowers based upon their credit score and DTI ratio. For these tools and the services provided, Lending Club charges borrowers a 1% service charge which is directly comparable to Prosper.com's fees.

Lending Club differs from Prosper in that if a loan is not fully funded for a borrower, they can opt to take partial payment of the loan which ensures that the lender's money is invested quickly; Prosper cancels the loan and permits the borrow to re-list. Both lending networks do all the work for you including employing collections agencies - Lending Club's agency charges 30 -35% of recovered funds, however it boasts a low 3% default rate.

Another great feature of Lending Club  for investors is that if you've tied up your funds and find that you need them at a later date, you can trade your notes for cash to other lenders. You can also buy notes from other lenders on their secondary social lending market, something Prosper is currently trying to establish.

You can read my review of Prosper.com here.

ICLR - Bought to Cover

Bought to cover ICLR at $17.65 for a $1.15 gain per share and a 6.1% return. I do think that it could have gone down further today but I'd already surpassed my goal of 5%, so I bought to cover to ensure my earnings.

Still a little negative in the other two stocks I bought yesterday but I think I'm going to wait on those...

RECAP:

ICLR SS @ $18.80
ICLR BC @ $17.65

Watchlist & Stock Picks 11/26/08

Alright a few rebels fell off our watchlist but we still have plenty of stock picks to choose from. Black Friday (the shopping day after Thanksgiving) is coming up. I really don't know what's going to happen that day - I'm thinking if sales are disappointing we're going to see a dip on Monday rather than Friday but I can't remember what happened last year as a comparison. Friday will be a short trading day most likely - I believe it's ending at 1:00 p.m. - but let's still be careful at the end of this week and watch our stocks closely.

Have a Happy Thanksgiving tomorrow!

Here are the stocks that are closer to making the set up we want:

BBV

IRE

DIS

AUO

AXA

EWH

RSH

SYMC

Here are the remainders that I'm going to look at:

ICLR

SPWRA

ARBA

CLF

CMI - this one might be poised for a breakout to the upside which is the opposite of what we want

CNS

DRQ

GT

MXB

NTG

PID

XME

LULU - this one went up since I day traded it yesterday - not too sure what its going to do. It looks like there's still room to make money, but I guess we'll see won't we!

AUO - Short Sold

Short sold AUO at $5.70.

LULU - Bought to Cover

Well I bought to cover LULU at $7.98 for a $0.52 gain per share and a 6.1% return on investment. I realized I had room for another day trade since I executed only 2 on 11/19/08.

RECAP:

LULU SS @ $8.50
LULU BC @ $7.98

Holiday Trading

We're obviously very close to the Holidays, with Thanksgiving coming up at the end of this week, and that means the start of Holiday Trading. Typically, trading during the Holidays is a bit dicey and I imagine this year will be no exception since no one is very optimistic about a healthy amount of consumer spending this year.

Even during the bull markets holiday trading can still be hard - simply because the "professionals" are taking extended vacations allowing us "amatures" to drive the markets. So, if you use stop losses, keep them close and if you don't keep an eye on your holdings to make sure you're still able to keep those gifts under the tree!

ICLR & ARBA & LULU - Short Sold

Short sold ICLR at $18.80. As always, my goal is to get 5% out of this one - so that would be about $0.95.

Short sold ARBA at $6.98.

Short sold LULU at $8.50.

Watchlist & Stock Picks 11/25/08

Alright we've got quite a few today, oddly - after the rally:

SHORT:

My favorites at the moment:

BBV

ICLR

SPWRA

IRE

DIS

The remaining that I'll watch:

ABB

ARBA

AUO

AXA

BCS

CLF

CMI

CNS

DRQ

EME

EWH

GT

IFF

MXB

NTG

LULU

PID

PPDI

RSH

SYMC

XME

Today's a good day for Day Trading

Rally days like these, during ongoing downtrends, are a good time to day trade. Again, if you don't have a balance of $30,000+ refrain from day trading more than 3 times in 5 business days. But if you do have a large account balance - I would recommend going long for a few hours to see if you can't make some money! But I wouldn't recommend staying in for more than a day as you just don't know what's going to happen.

I, unfortunately, am at my limit until December...crud.

Watchlist & Stock Picks 11/24/08

Still looking at shorts for this short week of trading. The market will be closed on Thanksgiving Day and will close early at 1:00p the Friday after Thanksgiving according to previous year's closures. 

Here's what we've got:

SHORT:

SMTC - need to wait for the "TAZ" set up - could be today, could be a few days from now.

GYMB - need to wait for the "TAZ" set up - it had a large rally on Friday so we'll want to watch it to be sure it's a good short candidate.

Day Trading

Day Trading is defined as buying and selling the same security within the same trading day. So, if you buy 100 shares of AAPL at 9:00 am and sell 100 shares of AAPL at 2:00 pm - you've just executed a day trade. Once you've executed at least 4 day trades within 5 consecutive business days your brokerage firm will tag your account as a PDT or a Pattern Day Trader.

Being tagged a PDT is not necessarily a problem unless you have less than $30,000 in your account- depending upon the firm's minimum. The legal minimum set by the SEC is $25,000 but it is within the broker's discretion to raise that amount.

Should you be tagged as a Pattern Day Trader and do not have the minimum in your account you'll be sent an Equity Call from your broker asking you to make a deposit to get your account up to the set minimum. If you don't have the funds and it is the first time you've been tagged a PDT, then simply send your brokerage firm an e-mail stating that you do not have the funds to deposit to your account and that you intend to reduce or cease your day trading activities in the future. Then request that your Pattern Day Trader designation be removed along with any holds that might have been placed on your account. Most firms will respond positively to this request as they have a one-time-exemption policy.

You might even want to call a service representative to confirm the process of removing your Pattern Day Trading designation as I'm sure all brokerage firms' procedures are different. If you can, try to send an e-mail and not a snail-mailed letter so that you're back up-and-running as soon as possible.

Here would be a nice example of a request to remove your PDT status:

"Thank you for the notification of my Pattern Day Trader Status. I understand the restrictions involved in being a PDT and given that I do not have the capital to keep my equity at or above $30,000 I would like to state that I will reduce my day trading activities significantly in the future and would like my coding as a Pattern Day Trader to be removed.

Additionally, if any locks or holds have been placed on my account please do remove them so that I might resume trading.

Please notify me if I need to take any further action."

If this is your second time to be deemed a PDT and you do not have the minimum required balance you'll be sent another Equity Call. If you cannot raise your account balance then your margin will be restricted and you'll only be able to trade long in your account. You might also have a hold on your account that will need to be removed. You will not be able to short sell any securities since short selling requires active margin. So, its not the end of the world, but you will be limited to making money only when the market is bullish which is generally about half the year. I would again, recommend calling your broker to discuss your options.

What I've always wondered is if you've been designated at one brokerage firm as a Pattern Day Trader, what happens if you open a new account at another brokerage firm - does the status follow you? Something to research for sure...

I found this website extremely useful when I had, come to find out, mistakenly received an Equity Call that I thought was the real deal: http://www.finra.org/Investors/SmartInvesting/AdvancedInvesting/DayTrading/P005906

Strategy Goals

A part of my swing trading strategy that I learned in the seminar I attended in the summer of 2006 that I've actually retained is the 5% rule. I think this is the most valuable bit of information I've been given and I've not wavered since I started trading. I may not reach my goal every time I trade but it certainly steers me in the right direction.

Every time I get in a trade I tell myself that my goal for this individual trade is 5%. Now, some trades could easily yield 10 - 15% in a week's time but you can never know in advance what it's going to do. You also don't want to be greedy, telling yourself you could make much more once it has already reached your goal almost always backfires. Giving yourself a reasonable goal helps you think straight and stay disciplined once you've already purchased the stock. So, think 5%. 5% is all you need to be satisfied - that's more than the average bank account would give you in a year on that same amount of money.

My monthly goals are the same - 5%. Each month I aim to earn 5% return on investment on the entire balance of my trading account. Again, that's more of a return than a bank would give you for 12 months.

Let's do some math and see how beneficial 5% a month can really be:

Initial Account Balance on January 1st: $10,000

$10,000 + 5% return = $10,500

$10,500 + 5% return = $11,025

$11,025 + 5% return = $11,576

$11,576 + 5% return = $12,155

$12,155 + 5% return = $12,762

$12,762 + 5% return = $13,400

$13,400 + 5% return = $14,071

$14,071 + 5% return = $14,774

$14,774 + 5% return = $15,513

$15,513 + 5% return = $16,288

$16,288 + 5% return = $17,103

$17,103 + 5% return = $17,958

By the end of December you'll have $17,958 - a return of almost 80% on your original account balance of $10,000. Being reasonable with your trading goals and your monthly goals can really pay off by year-end. Just remember to stay disciplined and stick to your plan.

Watchlist & Stock Picks 11/21/08

I'm going to leave a few on from what I had before. Slim pickin's on the scan today.

SHORT:

VIGN 

DXPE - formed a doji yesterday so it might be a sign of a turn around but I'm leaving it on the list.

NTAP - Bought to Cover

Just bought to cover NTAP at $11.72 for a 4.7% return on investment and $0.58 gain per share. It was much lower this morning but for whatever reason it had a large rally so I sold at the low point of a pullback. Wish I'd gotten out earlier this morning but I think I had a good recovery exit strategy.

RECAP:

SS NTAP @ $12.30
BC NTAP @ $11.72

P.S. Just looking around - it looks like we're having a bit of a rally today. Yay for the economy, boo for my picks.

Watchlist & Stock Picks 11/20/08

Alright we didn't get many new ones this go-'round but here's what I like:

SHORT:

NTAP - I got in yesterday at $12.30 but it looks like there's still room to make some money.

CXW - There's a lot of downward momentum since it gapped a few months ago, I'm usually leery of gaps so we might not pursue this one.

VIGN - not a real clear set up but it's certainly in a downtrend.

DXPE - maybe a little more room to move.

Happy trading!

Stockcharts.com

Stockcharts.com is a remarkable resource for technical traders; they have a number of pertinent articles, stock scans, and charts with delayed market information for free. Just click on Free Charts and you get access to SharpCharts, Performance Charts, Point & Figure Charts, and Market Carpets. If you trade a common candlestick pattern like bullish engulfing candles or shooting stars then you're in luck - there are also common stock scans free of charge.

Stockcharts.com also aids new (and even those needing a refresher) technical traders with their Chart School. There you'll find a list of articles on how to properly read charts, learn technical indicators, analyze the market, trading strategies, and more.

If you want even more from this service you can become a member for a number of price points starting at $14.95 per month to $34.90 per month. Even if you got the most "luxurious" package you certainly won't be breaking the bank.

If you run your scans at night and have a trading platform or a brokerage that offers real-time quotes then its not entirely necessary that you have real-time quotes through Stockcharts.com as well - mtherefore the package that I'd recommend is the Extra!Charting package - you're able to run scans that you've defined, store a number of charts, scans, and publish your stock picks to show off. (to see the scans I run click here)

However, if you don't have access to real-time quotes through your brokerage then I'd recommend the highest package - the ExtraRT! package - which includes the same as the Extra! but just with real-time quotes.

And if you're still not sure just remember that it has won Forbes "Best of the Web 2002" and "Best Technical Analysis Web Site" from 2002-2008. There's really not a better place to go for stock quotes and scans.

NTAP - Short Sold

I just short sold NTAP at $12.30.

Just FYI, currently anything I bought in the last week or so for a long is currently negative. I don't expect that to always be the case but that just proves that the longs that were pulling last week on the watchlists were just the product of a market rally before a larger drop. Go figure.

Watchlist & Stock Picks 11/19/08

Alright, here we go:

SHORT: 

DPXE - pretty steep downtrend - looks pretty tempting

NTAP

RRGB - not too sure about this one but I'll watch it

Just one long candidate came up today and it was a dud. I'm still long in ALK but seeing as its slow to move I'm hoping to be out soon so I can move my capitol around to something more productive.

How to Run a Scan

For the swing trading strategy I've chosen a few of my picks come from running a scan on the market to see what's making the set-up I like to best trade. I use Craig's formula (the Trader's Action Zone or TAZ) on Swing-trade-stocks.com to set up a scan through Stockcharts.com. If you follow his simple instructions you'll be up and running, pulling your own scans, and making some serious money. You can also tweak his formula to restrict the type of stocks that appear - if you have a small amount to invest, like I do, then you may not want a stock that costs over $15.00, $30.00, or $60.00. You can also tweak the scan to make it pull long or short candidates for your watchlist.

Here are two scans I use frequently that my trading partner set-up and shared with me:

"TAZ" LONG $5 -$15

[type = stock] and [country = us] and[daily ema(60,daily volume) > 150000] and [daily high <> ema(30, close)]and [daily close > daily ema(30,daily close)]and [daily close <> daily sma(200,daily close)]and [weekly sma(10,weekly close) > weekly ema(30,weekly close)]and [ADX Line(10) > 20.0]and [close >= 5]and [close <= 15]

"TAZ" SHORT $5 - $15

[type = stock] and [country = us] and[daily ema(60,daily volume) > 150000] and [daily low > yesterday's daily low] and [yesterday's daily low > 2 days ago daily low] and [SMA(10, close) <> daily SMA(10,daily close)]and [daily close <> 20.0]and [close >= 5]and [close <= 15]

Scanning the market is very simple but unfortunately it is not free. A membership with Stockcharts.com is $24.95 per month for the scan engine service. However, like commission you pay to brokerage firms, that's just part of the investment. Its not what it costs you but what it's going to make you... within reason of course!

VNUS - Bought to Cover

Well, I made 4.1% a lot faster than I thought I would on VNUS. I just bought to cover at $13.63 with a gain per share of $o.58. I wanted 5% but given my schedule today, I figured it would be my safest bet to remove myself while I was ahead!

RECAP:

SS VNUS @ 14.21
BC VNUS @ 13.63

Day Trade Disclaimer: This counts as a day trade since I bought and sold the same security within the same trading day. If you have less than $30,000 in capitol (depending upon your broker's rules) you cannot buy and sell, or make a round-trip, on any one security more than 3 times in 5 consecutive business days. So, for four more trading days I have to be sure not to execute more than 2 day trades.

VNUS - Short Sold

Short sold VNUS at $14.21 - going to watch. Might just get out before my 5% goal.

Watchlist & Stock Pick - recap

I was just about to short ANW but taking a better look at it, I think the Moving Averages are about to converge which could be an indicator that it's going to stop going down and start going up. I'm going to remove that from the watchlist.

Watchlist & Stock Picks 11/18/08

Well, I was a bit more satisfied with the number of stocks that pulled through on the scan for shorts but again, none appeared for the long scan - that's usually a sign of where the market's going.

SHORT:

VNUS - not pleased with the way it looked today but we'll keep it on and watch it.

ANW

VISN

LONG:

ALK - I'm still thinking there's something here. It's slow to take off but that might be because the market's pull is generally downward. Again, I don't really recommend trading the opposite direction the market as a whole is going. But, you have the rebels here and there.

recap

Watchlist & Stock Picks 11/17/08

Well we're still pulling only a few shorts on the scan and today there were no long opportunities at all. So here's what we've got:

SHORT:

VNUS

LONG: 

ALK - I think it might still be a good time to get in - I'd be careful because since I got in long its gone down a bit - that's not abnormal but I'd just watch it.

Rally

A rally is the time when a stock is trending downward but the price point rises for a few days before heading back down. Many people make money trading just pullbacks and rallies but I'd always recommend trading with the stock market and the stock's trend.

Downtrending stocks usually don't head straight down for days at a time - typically the stock will go down for about 5-10 days with a short 3-5 day period where the stock rises before falling back down further than before the rally. If you're looking to get in a short sell swing trade after a rally, make sure of two things (just like in a pullback): first, be sure that the rally does not last any longer than 5 days and secondly, don't trade a stock if during the rally, the price point has risen above resistance. 

If a rally has lasted more than 5 days the general idea is that the stock's downtrend is not as strong as it once was or as strong as it should be. These stocks are not typically good candidates to short sell swing trade.

Additionally, if the rally allowed the stock to go above resistance - this is called a "breakout." Breakouts are not good in any case because it makes the stock a lot less reliable. If it has a few crazy days where it trades out of its norm then you can't trust that its going to perform for you like you plan. Its a rebel - and rebels aren't trustworthy.

The opposite of a rally is a pullback.

Swing-trade-stocks has a great segment on when to get in and when to get out of a trade that helps illustrate pullbacks and rallies.

Pullbacks

A pullback is the disappointing time when a stock is trending upward but the price point falls for a few days before heading back up. Many people make money trading just pullbacks and rallies but I'd always recommend trading with the stock market and the stock's trend.

Uptrending stocks rarely only go up for months at a time, about every 5 - 10 days the stock will fall for about 3-5 days and then head back up just to hit a higher price point than before it fell. If you're looking to get in a swing trade after a pullback  - be sure of two things before you hit the "buy" button: first, be sure that the pullback does not last any longer than 5 days and secondly, don't trade a stock if during the pullback, the price point has fallen below support. 

Once a pullback has lasted more than 5 days the general idea is that the stock's uptrend is not as strong as it once was or as strong as it should be. These stocks are not typically good candidates to swing trade long on.

 Another pullback caveat is if the pullback caused the stock to go below support - this is called a "breakout." Breakouts are not good in any case because it makes the stock a lot less reliable. If it has a few crazy days where it trades out of its norm then you can't trust that its going to perform for you like you need it to. Its a rebel - it's going to do what it wants.

The opposite of a pullback is a rally.

Swing-trade-stocks has a great segment on when to get in and when to get out of a trade that helps illustrate pullbacks and rallies.

Support & Resistance

Support and Resistance are an important part of both swing trading and day trading strategies. These two points do two things; first, they help you to decide how much you could potentially make on a trade and secondly they help you establish an exit strategy. It's vital that you have an exit strategy BEFORE you get in a trade and mine is usually dependent on where the support and resistance lines are as well as my 5% goal.

A support line is established where the lows have historically been stopping before rallying back up over a certain period of time. And a resistance line is the opposite: where the highs have historically hit before pulling back down to support. Support and resistance sort of pass the price point back and forth like a bouncy ball - they work in tandem if the stock is trending in a regular fashion. If you can't find a clear support and resistance line - pass. Do not trade this stock. If you don't know what it's doing... then it doesn't know what it's doing!

Now, if you can trace a nice, neat support line that follows lows that have been hitting at higher and higher points and a resistance line that has also been hitting at higher and higher points then you can be assured that the stock is in an uptrend. How do we know how much money we're possibly going to make in this uptrending stock?

Let's say that the past five lows that mark the support line are at $5.00, $5.50, $6.00, $6.50, $7.00 and that the past five highs that establish the resistance line are at $6.00, $6.50, $7.00, $7.50, $8.00. By drawing the support and resistance line at the aforementioned price points you can see that the distance between support and resistance as the stock trends up is about $1.00. So, thats tell you that if you get in at support and got out at resistance you have the chance to make $1.00 per share.

How do we know when to get out? Well, the stock's support and resistance tell you that historically between the last low and the next high you're most likely only going to get a $1.00 or so before the stock has a pullback down to support. It wouldn't make sense to set your exit strategy at $10.00 when resistance tells you that in the next few days it's only going to hit at about $9.00 before the next pullback.

SUMMARY:

Support and resistance outline how much room the stock has to move (in our example - $1.00) and it tells you what the next estimated high and low are going to be which should allow you to determine your exit strategy prior to purchasing. On an uptrending stock, generally support = entry and resistance = exit. If you're shorting a stock, then it's the opposite: resistance = entry and support = exit. Flat support and resistance lines mean that the stock is either a channeling stock or currently consolidating.

Swing-trade-stocks.com has straightforward visuals and a tutorial on how to determine support and resistance.

ALK - Bought

I just bought 50 more shares of ALK at $25.4.

Watchlist & Stock Picks 11/14/08

Nothing worthwhile is really pulling on the Long or Short scans so, again we'll not be desperate and just keep what we have. I'm only picking one long since the two shorts I had went up significantly by the end of the the trading day.

LONG:

ALK

ALK - Bought

Just bought ALK at $24.91.

Channeling Stocks

Channeling Stocks earn their name because they trade within a "channel" or a wide range of support and resistance. For example if a stock has been hitting a high of $7.5 and then will bounce back down to a low of $6.00 a number of times within month or more, then every time the stock changes trends, you can bet that you're going to make a $1.5o gain per share if you change your position along with it.

This strategy can be either very lucrative or very expensive. I would recommend studying candlestick patterns if you decide to adopt this strategy as there are many signs and formations that can help foretell that a stock is going to break out of a consolidation pattern. 

Consolidation

When the market or a stock is consolidating or going sideways then it is neither trending up or down and that the highs and lows are repeating themselves over a certain period of time:

In an uptrend, the highs get higher and the pullback lows are getting higher, too.

In a downtrend, the lows get lower and the rally highs are getting lower, as well.

Consolidating means that the stock or the market is trading within a narrow range just bouncing off a flat line of support and resistance without higher or lower highs and lows.

Swing-Trade-Stocks.com has an excellent description of market trends.

Some people make a great return on investment on stocks that are consolidating within a wide support and resistance range. These are generally called Channeling Stocks because they trade within a "channel."

Watchlist & Stock Picks 11/13/08

Well, this is definitely less of a stock pick and more of a Watch-and-see-what-happens-list I'm not encouraged by much of what's pulling but here are my possibles anyway:

SHORT:

HPT

LONG:

ALK

WPP - possibly consolidating now that its over the 200 MA

Bear vs. Bull Market

A bear market means that the market is generally trending down and you'll want to be shorting the market. A bull market means that the market is trending upward and you'll want to be long in your trades. 

A visual I learned in high school economics to help remember which means up and down is to envision the way each animal attacks - the Bear attacks with a downward swipe and the Bull rushes and attacks with an upward stab. Easy!

Swing-Trade-Stocks.com has a great article on how to determine the market trend.

Real World Short Selling Analogy

Ok, so short selling is selling high and buying low. Let's take a look at how this transaction would happen with tangible goods:

Joey is a down-and-out college student always looking for some fast cash and his roommates, Kevin and Brian, happen to always have nice things just lying around.

Last moth, after Kevin bought a new mountain bike for $2,000, Joey happens to notice that the same exact bike is for sale in the classified for $1,950.

So, Joey takes Kevin's mountain bike to the resale shop and receives $2,000.

Then he turns around and buys the same bike for $1,950 from the ad.

Joey's just netted $50 and no one is the wiser.

Yesterday, Brian just bought a brand new video game console for $900, but the local electronics store has the same console listed at $750.

So, Joey takes Brian's console to the resale shop and receives $900.

He then buys the same game console for $750 at the electronics store.

Joey's again come out on top by gaining $150 on someone else's goods.

Joey makes his money by selling high and buying low.

To read how short selling works in the trading environment read here.

How "Shorting" a Stock Works

"Shorting" or short selling a stock is a confusing concept to grasp. I never fully got it until I actually executed a short sell trade. Being able to short sell a stock is mind-bogglingly exciting because you're able to make money as the stock price goes down.

It's best to remember the old mantra "Buy low, sell high," although it's more like "Sell high, buy low." I'll explain: When you short a stock you are selling off someone else's shares as a loan that you're agreeing to buy back, hopefully at a lower price. Whose shares? The sucker who has been convinced by his broker to buy and hold. They'll never even know the transaction took place because their broker is making commission on the secondary transaction on their long-term holdings. Bother you? Not me! Their apathy is my opportunity to make some serious cash.

THE BASICS:

Short sell - entry 

Buy to Cover - exit

AN EXAMPLE:

Let's look at a trade I made in November - BIDU. I short sold 10 shares at $202.5o. So that means that I took out a loan on BIDU for $2,025.00. Once the stock fell to $192.87 I bought to cover the same 10 shares for $1,928.70, making a profit of $94.30.

Here's the same information written in a different way:

Take out a loan for $2025.00, pay back the loan at only $1928.70 and you profit $94.30.

Yet another way:

Short sell 10 shares of BIDU at $202.50, buy to cover 10 shares of BIDU at $192.87 and you gain $94.30

And another:

(Short) sell high, buy (to cover) low

It's pretty amazing that even when we're in a bear market - you can make some real money. If you're still a bit hazy here's a real world analogy of what you're doing when you short sell.

My Stock Trading Strategy

In the summer of 2006, I attended a stock trading seminar with my current trading partners that was extremely beneficial - I knew nothing before I went and left with an immense amount of knowledge about technical swing trading. In the end, we learned it was a "scheme" only because interspersed throughout the three-day crash course were hard-sell pitches to buy more training sessions, software, and one-on-one mentor sessions. Luckily, we did not buy in! We took our super cheap three-day course, the few strategy tid-bits it had to offer, and grew on our own and with other, cheaper tools like Swing-trade-stocks.com.

My current swing trading strategy is primarily derived from Swing-trade-stocks.com, a site found by one of my partners a few months after our crash course. Craig, the site's creator, lays out the basics, the strategy, and how to execute winning swing trades beautifully and for FREE. He's remarkably easy to understand and his "TAZ" - "trader's action zone"- strategy works! The "TAZ" may not be for everyone but his strategy is the secret behind my hefty returns.

If you're brand new to trading - start on the left hand side at "Trading Basics." He takes you through the market stages, stock trends, an explanation of the importance of moving averages, how to read candlestick charts, how to use volume (the number of shares traded per day) as an indicator, how to use support and resistance as a way to determine if a stock is worth your time, and he explains relative strength.

If you're not new to trading but are looking for a new way to trade jump straight down to"The Strategy." My favorite sections for really understanding the strategy are Trader's Action Zone, Entries and Exits, and Chart Patterns.

I refer back to Swing-trade-stocks.com every few months when I feel like I'm floundering a bit and refresh myself on the strategy. I find that I start getting confident and skipping over important checks before I enter a trade - and it's always there to steer me back on track.

Read about my Strategy Goals.

Read about Swing Trading Trend Changes.

Watchlist & Stock Picks 11/12/08

Well, my scan engine at Stockcharts.com is not pulling much of anything really - one long and one for a short and the one short stock was rubbish. So, here's my list:

LONG:

ALK

This one has a strong uptrend despite the bearish market therefore I can't say that I'd actually recommend it. I'm going to watch it and just see what happens. I might get in, I might not. No need to be desperate as I'm almost at my monthly goal already.

BIDU & GIGM -Bought to Cover

I just bought to cover a stock, BIDU, that I short sold before I started the blog. I short sold the stock at $202.50 (very few shares) and bought to cover at $192.87 for a gain per share of $9.63 and a return on invesment of %4.75. Not too shabby - took me a while though.

Additionally, I bought to cover GIGM at $5.67 which I short sold at $5.75 with a gain per share of $.08 and a return on investment of %1.39. Not a big win by any means but it seems to be consolidating since I purchased it and since I had even a small win I decided to get out and free up the capitol to use on something that's actually going to move.

RECAP:

BIDU SS @ $202.5
BIDU BC @ $192.87
Return on Investment: %4.75

GIGM SS @ $5.75
GIGM BC @ $5.67
Return on Investment: %1.39

Watchlist & Stock Picks 11/10/08

Well, again, I'm not really confident on which way the market's going to go or if we'll have some go up and some go down - there are always the rebel stocks! I'm going to sit back today and see if i can't determine a strategy to take on for the rest of the week. Therefore, I don't have any stock picks for my watchlist today. Stay tuned and perhaps I'll have a few after I run a scan tonight.

I hate "research and waiting" days...

BW - Sold

Well my experiment with BW paid off (or paid back) to some degree - I bought at $11.97 and sold at $12.46 for a gain per share of $0.46 and a return on investment of 3.8%.

RECAP:

BW SS 100 @ $11.34
BW BC 100 @ $11.97

BW B 100 @ $11.97
BW S 100 @ 12.46

I wanted to make back at least what I lost on BW by reversing my position, but I decided that I'm not real confident in the market either way right now, so I thought I'd go ahead and sell while I was at a gain this morning.

Friday Trading

Well, this Friday we had a bit of a rally, I'll be interested to see what happens on Monday in the market. I'm currently holding a few longs and a few shorts but I'm not certain what we're going to see in the near future - the beginning of an uptrend or the continuation of the recent bearish market. 

GSIC & BW

Well, GSIC and BW started to go up this morning and I decided to try an experiment - I bought to cover and bought in the same step at $9.84 for GSIC and $11.97 for BW - so now I'm holding the same number of shares, just long instead of short. I might wind up regretting it, but it will be interesting to see what happens.

So thus far for BW it was a loss of $0.63 per share at %5.26 percent and for GSIC it was a loss of $0.34 per share at %3.46. Bummer.

Watchlist & Stock Picks 11/7/08

It's the last day of the week to make money!

The securities I am most excited about:

MPW

TXRH

MXIM - large hammer, a good sign

MTU

The remaining stocks on my list:

GSIC - I'm in already, think there is still room to make some money 

GIGM

PFWD

ULTI

SogoTrade

SogoTrade was my first account that I made my first official trade in! Unlike its sister broker, SogoElite, it allows you to trade through an online interface. There is no need to download a platform to the desktop of your computer. This can be handy if you're away from your own computer and want to check in and buy or sell a few securities. 

I changed from SogoTrade to SogoElite over a year ago because I earned enough capital to short the market (make money as the market falls) and SogoElite's platform allowed me to do that while SogoTrade did not. Based on the demos, it looks like SogoTrade has caught up with the times and supports short sells, a big plus and in my case a huge necessity.

Their rates are $3.00 per trade. They're running a promotion currently that if you sign up for a new account you'll receive 100 free trades with a minimum account balance of $500. Additionally, SogoTrade offers free dividend reinvestment, $100 back (in fees) when you transfer an existing account to SogoTrade, as well as 25 free trades for recommending a friend. 

Something they've recently added that has peaked my interest is their Stock Screener - you can search for stocks that meet certain criteria.  Just at first glance I don't feel it is as customizable as a StockCharts.com stock scan, nevertheless, for a day or swing trader that is a great feature.

I enjoyed my SogoTrade account and don't remember having any significant problems trading. SogoTrade also has a number of customer support methods; video tutorials and demos, a toll free number, 4 separate e-mail support accounts, AND live help - you can instant message a representative and get help right on the spot. One caveat though was that their free charts did not and still do not provide the stock quotes in candlesticks, so I needed to supplement my account with a Stockcharts.com account. Having two windows open was a bit cumbersome compared to the platform in SogoElite, but certainly not a deal breaker. 

I'd definitely recommend SogoTrade for the trader who wants a bit more flexibility in when and where they trade, but I prefer the cheaper fee structure and platform SogoElite provides.

Compare SogoTrade to:

SogoElite

SogoTrade

Zecco

See the Commission Structure Comparison

Last Updated 12/8/08

EverBank

While the goal is to have your money working for you, you also have to have a chunk of emergency cash in savings. Whatever your strategy, 3 months' salary or 8, you want your money doing what it can. A great way to do that is with a high-yield savings account. 

I would recommend EverBank. It vows to remain in the top 5% of competitive accounts and as an online only bank with lower overhead it can afford to be competitive. Currently, you can open their Yield Pledge Money Market Account with an interest rate of 3.93% for three months and a first-year APY of 3.41%. Some might not like knowing that there's not a branch to go to for customer service but for my purposes, it's not a concern. I rarely visit my primary branch as it is, I handle everything over the phone or through the web - going to a physical location takes time and is inconvenient in today's world.

The bank is solid financially and has recently announced record annual earnings. Forbes has listed it as a five times winner of the "Best of the Web" and Money Magazine has listed it as "Best of the Breed." Very nice to know.

The online application is quick, once you're done you print out a confirmation page, sign it, include your opening deposit, and mail it off. I was surprised to see pre-paid envelopes stuffed with a deposit slip in my welcome packet that came just a few days after opening an account. I guess this is a perk they provide considering if you were able to go to a branch you wouldn't have to spend $0.42 on a stamp to send in your deposit.

I'm currently only using EverBank as a place to house my emergency fund so I only know a little about using it as your primary bank. Since EverBank does not have its own ATM's it does reimburse you up to $6 per month for fees charged by other banks. Pretty sweet. 

Additionally, EverBank's checking account has no monthly service fees, online bill pay, and pays interest! Checking accounts with interest are hard to come by, not to mention EverBank will remain in the top 5% of competitive banks - so you're always getting a top rate.

I chose EverBank after hearing that JPMorgan Chase was buying my WaMu account - I was earning around 3.9% before JPMorgan Chase moved in. The first day JPMorgan Chase took over, I researched what they were offering on savings accounts - it was 0.10%. That's insane. I value myself, my time, and my money more than 0.10%. I knew my WaMu account interest rate was going to eventually sink down to virtually nothing so I went on the search for new high-interest savings account. 

I'm willing to put in the work to make the most I can on otherwise stagnant cash, but I also don't like to be inconvenienced. I was sold once I read that EverBank would always remain competitive - I don't have to shop and move my money around anymore looking for the best deal! Hallelujah! 

GIGM

Short sold GIGM at $5.78.

BRKS

Bought to cover BRKS at $6.36 at a $0.50 gain per share and a %7.28 return on investment. Today is proving relatively profitable!

I'm beginning to wonder when the market will turn bullish and we'll begin longing stocks rather than shorting them. I'm trying to improve my ability to estimate changes in the market - it almost never fails that I get in a lot of shorts because I'm confident of the downtrend and then the market goes up or I get in a lot of longs and the market takes a dive.

I'm continuing to buy shorts, I'm just keeping that thought in the back of my mind and watching for signs of a change.

GSIC & BW

Short sold GSIC at $9.50 and short sold BW at $11.34.

BW is already performing, but GSIC looks like it will be a slow starter.

IVAC & MENT

I just bought to cover IVAC at $6.76 for a $0.58 gain per share, which yielded a 7.9% return on investment. Not a bad start for the morning!

I also decided to buy to cover MENT at $6.52 for a $0.30 gain per share and a 4.6% return on investment. It had been hovering aroun $6.52 at the end of the trading day yesterday and when I opened my account today I saw that it gone up $.06 and decided not to mess with it anymore since it was near my goal percentage.

Still in BRKS, looks good so far. I've removed it from my watchlist though as I feel its a bit too late to get in and still make some money.

I'm going to review my watchlist from last night and see what I'm liking for today!

Watchlist & Stock Picks 11/6/08

I ran a new scan yesterday after the market closed and mixed the new ones with the old:

My favorites at the moment:

GSIC

MPW

TXRH

The remaining on my watchlist:

GIGM

VQ

PFWD

MXIM

MTU

DPTR

ULTI

IVAC

I short sold IVAC at $7.34. As always, I'm aiming for a 5% return on investment.

QCOM & BRKS

Well, QCOM jerked me around a little and I'm pretty sure by looking at the candlesticks that it changed its support and resisitance since I got in about five days ago.

So, I opted to buy to cover QCOM at $35.74 with a $1.33 gain per share and a %3.72 return on investment. I was hoping to buy to cover around $32.00 but seeing as the support and resisitance range raised and narrowed, I decided it would be best to get out while I was ahead.

I short sold BRKS at $6.86.

Watchlist & Stock Picks 11/5/08

A few stocks have gone above resistance, therefore I am eliminating them from my watchlist. I'm hoping to find the time to run a new stock scan tonight after the market closes. I have plenty on my list, but it would be nice to get some fresh securities in the mix!

Here are the stocks I'm most excited about:

BRKS
IVAC
MENT - I'm in but i think you can still enter to get a nice return.
FPO - I think some money can still be made.
MPW
CONN
GSIC - three down narrow candles in a row - usually a good sign for a short.

Here are the remaining symbols on my watchlist:

ALKS - although I think its past its prime to get in.
BLX
BKI
BW
COGT
DAR
FOR
GIGM

FPO & MENT

I just bought to cover my FPO shares at $10.60 for a $.57 gain per share and a %5.10 return. That ought to help offset my loss on ALY.

I did short sell MENT at $6.82 yesterday a few minutes before the market closed because the technical set-up was too strong to resist! I wanted to remain in cash, but this one seemed really ready. Its looking ok for a gain thus far this morning.

QCOM is looking riper for a sell, possibly later today. I'll keep a close eye on all positions today.

Prosper.com

PROSPER IS CURRENTLY UNDER A CEASE-AND-DESIST UNTIL THEY ARE PROPERLY REGISTERED WITH THE S.E.C.

Ask any financial advisor for general advice on how to invest your money and they'll say, "Diversify, diversify, diversify." While I'm not a fan of general advise, there is some validity to diversification. But... only as long as you're doing well within your diversification tools. Diversifying with a low yield tool is nonsense, that's just allowing your money to sit stagnantly.

A fun diversification tool that I've found to be prosperous is Prosper.com. I've been earning 9.95% with a conservative portfolio. Let me explain: Prosper.com is a "people to people lending marketplace." With the market downturn and banks adopting stricter lending practices those in need of funds have turned to this social lending site for loans. This is good news for those of us who have a little extra cash laying around and want to get more than a measly return from the same hesitant-to-loan banks.

It works like this: Prosper.com runs a credit check on each borrower and rates them on a AA, A, B, C, etc. basis. Each loan needs to be paid back to lenders within 3 years. They create a listing detailing how much they hope to borrow, their current monthly expenses proving that they can make the estimated monthly payments, some borrowers detail how the money will be spent, and Prosper sets an initial listing interest rate based on their credit rating that lenders will reverse auction down.

Lenders fund their accounts with cash they don't mind seeing in full for 3 years. You can choose a pre-set portfolio that has an estimated return or define your own parameters. Essentially, your "portfolio" is a list of borrowers you're comfortable lending to. It places your funds automatically as new, approved listings appear. For example, in my self-directed portfolio I chose to loan to borrowers that meet the following criteria: a credit rating of B or greater, a Debt to Income (DTI) ratio of 14% or less, less than 7 open credit lines, and a listing asking for $7,500 or less. I also set a minimum for each category of borrower, for example: For borrowers with an AA credit rating the lowest percent I'm willing to receive for my loan is 5%, but for B rated borrowers I'll accept nothing less than 8.5%.

Obviously the more risky the borrower, the larger the interest you will receive IF they pay the loan back in full and don't default. Prosper.com has great charts on the likelihood that each credit rating range will pay back the loan - I found it quite useful and used their research material to create my above-mentioned portfolio. I'd like to note at this point that I created a very conservative portfolio that Prosper estimated would yield around 5.41% per year, but currently I'm receiving 9.95% annually. So don't be discouraged or think that you need to loan to risky borrowers to earn a decent return on investment. Thus far there are more borrowers than lenders, therefore you've got the pick of the litter.

Prosper.com recommends that lenders only allocate $50 dollars to each borrower listing - therefore if you have $2,000 to invest you'll be funding 40 loans. This protects your funds in the event that a borrower defaults on a loan. Prosper.com offers two collections agencies to chose from and provides a record of their successes so that you can make an informed decision on who you'd like to employ. The collections process starts automatically once a borrower defaults, and if you are unsatisfied with the collections agency that you chose you can always change it.

If you find yourself in need of your funds back - you have two options. You can become a borrower on Prosper.com. Or, if you pause your portfolio, Prosper.com will stop lending on your account and as your borrowers make payments your funds will trickle back you along with gained interest. Typically a $50 loan will have around a $1.50 monthly payment back to you, so if you have 40 loans you'll be getting back about $60 a month available for transfer, not including earned interest.

I have found Prosper.com to be very lender and user friendly and have enjoyed great success even with a conservative lending portfolio - 9.95%. It is truly hard to find that kind of return currently without great risk.

You can read my review of another popular social lending network - Lending Club - here.

ALY & FPO

I bought to cover my shares of ALY just a moment ago - at a loss of $0.56 per share. Its best to have my capitol back to invest in a security that was not affected by the Election Day Frenzy. Let's try it again.

Just short sold FPO at $11.17 as it made the proper set-up and it has quite a bit more room to move. I'm really eyeing IVAC and MENT at the moment as well. I have to admit even as a technical trader, I'm leery of using all my capitol shorting around this Election - I'm not sure what's going to happen tomorrow when the winner has been decided.

I think I'll keep what I have in cash, in cash.

Watchlist & Stock Picks 11/4/08

Alright, I've been watching the market and my watchlist has definitely changed. The "Election Day Rally" has knocked a lot of stocks out of the set-up pattern they were making.

Here are the stocks I'm most excited about:

FPO
MPW
BKI
CONN
IVAC
MENT

Here are the remaining symbols on my watchlist:

ALKS - although I think its past its prime to get in.
AMLN - although I think its past its prime to get in.
AYR
BLX
BRKS
BW
CE
CMCO
COGT
DAR
EXR
FOR
GIGM
GSIC

Election Day

I voted this morning, it was only a 52 minute wait. As I was leaving the voters were arguing with the elections judge - I think I narrowly avoided a riot.

Well, today I heard on NPR that there has been an "Election Day Rally," and sure enough my shorts have gone up. We'll wait it out for this afternoon to see if I need to cut my losses or if the excitement will fade off.

I'll update my watchlist if I can.

Watchlist & Stock Picks 11/3/08

After the market close on 11/3/08 I ran a query on stockcharts.com and it returned a huge amount of symbols that met my pre-determined criteria. My eyes became tired after the "M's" so I decided I had plenty of potential stocks.

Here are the stocks I'm most excited about:

ACLI

ALKS

AMLN

APP

AYR

CLMS

FPO

IRC

MPW

Here are the remaining symbols on my watchlist:

AAUK

ABB

AMCC

AMSC

ARA

ARBA

BDN

BKI

BLX

BPZ

BRKS

BW

CE

CMCO

COGT

CONN

DAR

DRE

EXR

FOR

GIGM

GSIC

ID

IVAC

MENT

This is a ridiculous amount of stocks compared to the usual 5-10 that I normally keep on a watchlist. It is particularly ridiculous considering all my funds are currently placed! It is important for me though, to keep an ongoing watchlist because I could sell a security at any moment and I'd like to have a replacement ready and waiting.

If a stock does not make the desired set up within about 3-5 days, it will usually fall off the watchlist. It's always interesting to see which make the cut and which don't!

SogoElite

SogoElite is my first choice in brokers. For starters, they're cheap. They're real cheap. They're $2 dollar roundtrip cheap if you trade less than 200 shares at a time. Anything over 200 shares and its $.004 per share to get in and to get out. There's a $10 monthly data charge but you really can't beat this deal if you are a frequent trader. To get a better understanding, the commission schedule is proudly displayed on their home page: elite.sogoinvest.com.

Additionally, it has an easy-to-use platform that you download to your desktop, rather than the online interface most brokers use. I can short sell, buy to cover, buy, sell and execute after hours trades if I feel so inclined. I was a bit leary of the platform at first, but after getting started, I truly can't imagine how I'd operate with out it. Everything I need is there. The way I have it set up I can see monthly charts, daily charts, my watch list, and my currently owned securities all in one neatly organized window with to-the-minute stock quotes. I buy and sell on the spot through the SogoElite platform. I can see when my order was executed and watch its progress as soon as I've purchased it. The only regret is that I cannot see a percentage return on the securities I own - I have to crunch the numbers on my own to see if it's ripe for selling. But that's a minor complaint for sure.

One less-than-minor complaint is that the platform doesn't communicate immediately with the online SogoElite site. My trading activity isn't reflected on the online account history or the account activity panels for 24 hours. Considering I keep a meticulous journal of all my trades this grates on my nerves if I forgot to write down my purchase and sell prices. I have to wait until the next day to journal my wins/losses. Again, there's always a work around - write it down or wait a day. Nevertheless, it is a strange delay.  

SogoElite has a number of customer support methods; video tutorials for every facet of the platform, a toll free number, and 4 separate e-mail support accounts. I find the e-mail support a bit cumbersome as it takes a few hours for a response. That's understandable considering the nature of e-mail, but nevertheless I prefer the toll free number as I rarely have to wait for a customer service representative. Despite it being a discount brokerage firm, I haven't received "discount" service at all. You won't have to worry about getting help after you've signed up for an account. All around, I've been very satisfied with SogoElite and would recommend it to any trader who has at least $2,500 to play with. (If your funds are a bit more limited, try its sister company: sogotrade.com. It has an online interface and a lower minimum.)

FOR MAC USERS:

One caveat which I've found a way around is that the platform is not compatible with Macintosh computers. However, I simply downloaded the Apple Bootcamp which allows me to run a PC on my Mac - at start up you just pick PC or Mac (easy!). If you call and ask customer support, they will tell you that the platform does not work on BootCamp...but it does. They're simply not able to guarantee that it will work but mine has been operating fine for over a year.

Compare SogoElite to:

Just2Trade

SogoTrade

Zecco

See the Commission Structure Comparison

Last Updated 12/8/08

QCOM & ALY

First post. Today I short sold QCOM at $37.07 and short sold ALY at $6.39.