Contract for Difference Trading

Start to learn trading Contract for Difference.

A website resource: http://www.cfdtrading.biz/

Top finance sites

Top finance sites
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CNNMoney	3,394	2.68
Forbes.com	2,253	1.78
Reuters	1,683	1.33
ConsumerInfo.com	1,639	1.29
Motley Fool	1,314	1.04
Bankrate.com	1,079	0.85

Free Stock Pick website

Here is a free stock pick service website with tracked performance.

http://www.stockpicklive.com/

Half Successful Trade - IDMI

This is my today's half successful trade today.

Successful:
I bought at the right beginning at market open. My entry price is $3.62. This is a biotech company and dramatically do down for several days. I found that for biotech stock, if it is in the base area, and the price is gap open high, it is very likely that it is a good up trend day. (I have not seen a counter case for 1 to 2 weeks since I notice this.) And the price is go up in the first 2 minutes, so I get in.

Failure:
1) I should buy more in the middle of the up trend. (Anyway, this is my first try on this kind of setup)
2) I exit too early at $4.1. I should wait until the EMA5 cross down to EMA 34. It is about $4.4

Failed Trade - ALTH

I failed trade ALTH today.

ALTH is failed to develop one of their two drugs. I have never seen a stock failed drug can go up like this.

My error:
1) When the price go up in the premarket, I think it is a good buy, since the company will go down heavily due to its failure drug development. But I am wrong. So WHEN STOCK GO UP, NEVER SHORT IT. This is the same error on ROLL trading.

2) As a day trading candidate, I can not short. This is what I confirmed today. Short such a low price stock require large amount of margin. It is not deserve to short stock as a trading candidate. NEVER SHORT ON DAY TRADING.

What is the makeup?
I did not recover at all, because I do not know when the stock will go down. After all, their drug is failure. But I also do not have money to short them more when the price go up since short low price stock require so much margin.

What I did is buy back part of the stock and at the same time, buy put option. At this time, I need to buy a little bit more put contract since option is not 1:1 to the stock. I guess 2:1 maybe a good choice (Also include some additional short power).

Finally, it goes down. Also I still lose some money, but just a few.

DO NOT DO ANYTHING ERROR AT THE BEGINNING. NEVER SHORT WHEN THE STOCK IS GOING UP.

Short is not good for day trading

Short is not a good candidate for day trading because the margin requirement is huge. For example, in IB, the stock below $5 require margin of $5/share.

So when is a good time for day trading buy? I am thinking of several following situation.

1) The company has breakthrough news, the price is go up and after market open, the price is still go up.

2) The company has bad news, the price go down dramatically, then the price start to go up, EMA 5 cross above EMA 34. This could happen either in pre-market or after market open

Fail Trade - ROLL

I lost money in ROLL today. So it is a good to write something.

I didn's short at the opening, as normally I will do, but I short at about 10:15 at the price $37.25. At time time, for 1 minute chart, EMA 5 is already cross up the EMA 34. But in 15 min chart, the price just touch the EMA 5

The entry point is not good, so don't do anything when EMA 5 cross up EMA 34 in 1 min chart because the story might be different now.

If I go into it, the first choice and the best choice is stop out at $39.

Never never buy reverse at this time, since we don't know where is the top and don't forget this stock gap down!!!

OK, second choice, short more when EMA 5 cross down EMA 34. And cover back when is good time. Today is at the market close. Have to close today because 1) I double the position, so it is dangerous. 2) This stock is volatile and not commonplace with others. So I do not know what is happening tomorrow morning. (Normally, gap down stock with down extension will get gap down next day, but here is not the case)

Last choice, do nothing, and cover back tomorrow morning.

Buy at pre-market if volume is large and be careful - AVNC

From the news, the company has drugs approved. BUT it is not a so excited drug according to my opinion. This is a concern!!!

Notice the large volume is pre-market and there is no heavy rising. This is a concern!!!

After market open, the price go up. I get in at $3.8. The high is at $4 and I get out at $3.72. Notice that EMA5 cross down the EMA34. LOSE MONEY!!!

What learned?
1) For high volume in the premarket, IF want to buy, buy at the pre-market. The reason? So many people get in, so there maybe no much rising room after market open. IF buy at $3.3 at pre-market, still have a lot profit.

2) Strengthen the idea that if EMA5 cross down EMA34, exit immediately. Don't wait to Fib ext.

Watch out the concern. Look at the chart carefully!!! Be Careful!!!

P.S. I update the whole day graph. It is a pretty perfect open high and close low example. It is confirmed my concerns on this stock. Some typical perfect examples is the open price is the highest price of the day and go down for that day. That's why I should wait to see the trend of the opening 1 to 2 minutes.

IDEA: If I have some concern on one stock, and it is still open and go up at the opening, if the price rise bigger than 50%, then I can short it when EMA5 cross down to EMA34.

Never shortting the leading stock - OMR

OMR found treasures under the sea. Look at the stock price. For the first 30 minutes, the stock go down for almost $1. If we short at the open, then look at the last 30 minutes of the day, then we can get the conclusion that NEVER short the leading stock. The reason? Even if the stock open too high, because it has a good news, there is no much room for it to go down. In other words, the risk is more than the potential profit.

Classical Day Trading of LUNA

This is a very classic day trading graph. Notice the following characteristics

1) Pre-market's volume is small. This is good because most of the buyer is not coming.
2) Entry point at $4.47 @ 9:33 AM EST. This stock breaks the screen criteria of volume>100K after market open. Check the news, bio company has positive result. The price is up. Buy in immediately.
3) Exit at the Fibonacci extension at $5.5.
4) Notice in 1 minute chart, the EMA5 never drop back under EMA 34 in the rising period

Crash!

How to manage the risk?

One way is to permit the maximum loss per trade to 1% of the account.

For example, a $100K account and 1% of the account is $1000. If the stock price is at $25 and the stop price is set to $21, then buy $1000/($25-$21)=400 shares.

The drawback is if a very stable stock suddenly go down a lot. For example, the bank company stock normally is very stable. So we can set small stop. If the price is at $100, and stop is set to $98, then we can buy 500 share. Those 500 shares cost $50K, that is 50% of the account value. If the stock gap down to $50 in one day, then we will lose 25% of our account value.

To prevent this situation, we can either set the diversity rule, that is no one stock can exceeds 20% of the account value, or just buy stock at the position value at fix percentage of the account value, say 20%.

When to buy option?

The only place to buy option is that I expect the stock price will move dramatically in short time and the stock has the possibility to gap in the opposite direction. If the stock is expected to rise, we buy the call and otherwise, buy the put.

For example, I expect AAPL will rise 20% in one week. But maybe AAPL will have small probability to gap down 20%. Notice the gap down. Buy call option can eliminate the gap down.
If the stock is a big stock and have very little possibility to gap large drawdown, then I don't have to buy the option the hedge the lost and waste the premium. I can just use the STOP order.

I don't consider the leverage benefit of the option trading here. Just consider the premium and gap.

The best place to buy the option is the stock price and strike price is the same. At this point, the premium has the best performance/price. For example, if the stock price is at $5, I buy the $5 option. If the stock price is at $5.5, the best bet is wait it back to $5.

But sometimes, you cannot get the stock price is the same as the strike price. In this situation, if you expect the stock will gap and surpass the strike price, then you have to buy in. For example, if the stock price is at $7, and strike price is at $7.5, if you expect the stock price will gap the next day to $8 and will never back to $7.5, then you can then buy the option at $7.

Staddle/Strangle option trading

When a stock is expected to move dramatically and we also do not know which direction the stock will go, then we can use option straddle/strangle strategy. The is the case on some Bio tech company. For example, DNDN, we don't know the future of the company very clear. If the company can get their medicine approved quickly, their stock will rock. But they can't get their drug approved quickly and short of cash or failed on their drug, their stock will go to zero.

So if I buy straddle/strangle, if the price move, we profit. If the price stays constant, we lose premium.

Then when to buy straddle/strangle? The less the premium, the better. So if the price option is at $5 and $7.5, and the stock price at $5/$7.5, it is the best place to buy the $5/$7.5 call/put. If the stock price is in somewhat middle, say $6.25, it is the best place to buy straggle, that is buy $7.5 call and $5 put.

When to buy option for day trading?

If a stock rises or downs greater than 40%, then when to buy option for day trading?

Only the volatile price drop will happen AND I cannot short the stock, then consider to buy the put option.

One situation is the stock rise for 40% in the pre-market, and then rise to 100%. And I cannot short. Then I may consider to buy some put.

2007-5-9 Trading of the day: DNDN

Today I traded DNDN and lost $0.6/share.

I opened my IB's top gainer screener, and found that DNDN was down about 50%. The first idea is they have trouble on approval. So I decided to short DNDN. Then I found that IB just doesn't allow to short on this stock. And at the same time, I found that DNDN is rising from $7.6 to $8. I didn't see the whole graph of the pre-market and changed my mind to BUY because the idea that it may rise flashing into my mind. I bought at $ 8.05 and set stop at $7.5. Then the stock started to go down. IB didn't execute my order. So I cancelled the stop limit order and immediate sell limit at $7.45.

What I have learned from today's trading?

1. IB doesn't support stop order in pre-market. (Maybe because it is market order. I can try stop limit order later.)
2. I have to see the whole picture before action. If I did saw the whole picture, I won't buy it.
3. This is what I already know. For the price drop like 50%, I have never seen one stock will go up in that day. Normally, it is bio stock and some really bad news comes.
4. I should read the whole news.

Other thinks:
The news said their approval for the drug will be delayed. According to the news, I do think the drop is too heavy and I can expect it may rise again. But for the recent two days, it might go down further, maybe to $5. So what I think the best to do is to buy a call at $5 two days later for long term position.

For short day trading, actually, it is ambivalent. I am not sure if it will really go down because the news is not a worst one. Buy a put at current price for short trading is not a good idea. And this stock is not allowed to short, the only thing can do is :
1) Wait to see if today it will have a heavy drop. If it go down to $5 in half hour, maybe I can get $1 retreat profit.

Top 100 Financial Blogs

http://blog.valuewiki.com/2007/02/26/top-100-finance-blogs/

How I find the gap information?

How I find the gap every day?

Actually, I have several methods to use.

1) Use my Interactive Brokers's Trade Station's screen feature.
2) Use Nasdaq.com premarket most active. It is real time information before 9:30 am, but it can only show stocks trading on NASDAQ, no NYSE stocks.
3) Use Yahoo Finance's most active just after 9:30. There is no active information before 9:30. The information provided by Yahoo Finance is what I called pseudo-real-time information. Because the rank is REAL TIME, but the price, volume is 20 minutes ago. So I get the stock ticker, and add it to stock chart software to see the real time price.
4) Tradermiker.net post some gap information from briefing.com.
5) Trader-X's thread on how to find the gap
http://traderx.blogspot.com/2006/09/finding-gaps-091206_12.html

It is hard to lose money in the stock market?

When you see the topic, "It is hard to lose money in the stock market", do you believe?

Let's think this way. If you have a trading method, and you lose money on this trading method, then you just do the opposite and you can win.

So it is hard to lose money.

Also, it is hard to beat the market, say the return of S&P 500 index. Look at this,
http://tony2007.blogspot.com/2007/03/secrets-about-s-500-index-that-you.html

How Trader-X trades

Trader-X gives out how he trades. He said his accuracy is about 80%, though I don't know how much he can earn in concrete number.

His trading method is here,

http://traderx.blogspot.com/2005/06/how-i-trade-and-analyzing-charts.html

And he is a day trader. As a day trader, we should always think the liquidity, that your money to buy or sell should not impact on price. Also price slippery is also the thing we should consider carefully.

And according to elitetrader.com, the best day trader's earning is 400,000 last year. So actually that is not a very attractive number for those who has decent job. And the quantas on Wall Street's salary is a stable 300,000. (The number is all heard from Internet boards)

Secrets about the S&P 500 Index that you should know

Read something about S&P 500

The whole article is here,

http://biz.yahoo.com/cbsm/070307/1b9c7d92295e4a0f91e2c8dd594d0f15.html

The following fact interests me.

"Indeed, the S&P 500 is a litmus test both for investors striving to outperform the market and those satisfied with market-matching results."

"An estimated $1.3 trillion is given to mutual funds and other portfolios directly tied to the benchmark."

"Another $4.5 trillion -- almost one-third of the U.S. market's $14 trillion value -- is deposited with investment firms that justify their fees by comparing their performance with S&P 500."

"'Did you beat the benchmark?' is the bottom line for mutual-fund managers and other investment professionals who trade larger-capitalization U.S. stocks. Just three in 10 managers in any given year can make that claim against the S&P 500."

How to deal with the market crash?

This week, the market is going down about -5%. This is the worst week after 9-11.

I think most of the investors lost their money in this week. Fortunately, I got about 5% gain this week.

OK. Let's talk about something how to deal with market down.

Some guys advice you to buy more at this time. Some guys say you should sell. Whose idea should we listen?

Every investor should well consider his/her own risk before invest. But like me too, I lost a lot of money before I have positive gain now. We can't seriously consider how risk is unless we are in the market and we lose the money. That's why most of the individual investors lose money.

My strategy for dealing the market down is to buy enough QQQQ puts. The reason is my trading method can beat the market no matter it is a bear market and bull market. Although I will lose some small money when the market is going up, but the QQQQ puts is like some kind of insurance. And if the market crash is coming like 1987 (down 20% in one day), I still can preserve my funds well.

Google the keywords "portfolio hedging" for further information. Enjoy.

Day Trader - Trader-X

Day trader Trader-X writes an excellent blog. A good start point to read his blog is,

http://traderx.blogspot.com/2005/08/welcome.html

Trader-X said he has the average win ratio above 80% based on his trading. He studied thousands of previous chart and reached his own trading style now.

And trader-x has several followers. They trade on different variations on his main idea.

To put in a nut, he is a gap trader and observes the trend on the first trading hour. And he trades if the chart is similar to his ideal chart pattern.

Thinking is good

I decided to start my stock investment blog at this time.

The two purposes of this blog are:

1) I can write down my thinking on my investment.
2) I hope my readers enjoy my blog.

I hope I can persist to write something. But anyway, I am starting.