Added to my FAZ position.

On Wednesday, my entry stop was triggered in the FAZ. I am now long 2 units (out of a possible 10), at $43.71.

I am offering out 1 lot in the high $60s and 1 lot in the high $70s. I will watch the chart and the headlines out of Europe for opportunities to add to or to lighten up my current position.

I will become interested in FAS in the $20s.

Disclosure: Long FAZ.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Nothingness

Sometimes doing nothing is just as important as doing something.

Right now, I am doing nothing.

Disclosure: No positions in any of the securities mentioned.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Some issues impacting the longer term profitability of the Financials.

As I continue to trade the financials via the FAS and the FAZ, I am reading more about their fundamental issues going forward. The overall tone of the news and regulations is that the financials will be much more regulated, and will rely more on fee and commission income and less on trading income. This could impact the longer term profitability and the profit growth of the industry, and thus the trading multiple that investors will be willing to pay for shares of the financial companies. This might impact a return to the mid 30s in the next 2-5 years for the FAS.

I will still continue to trade the FAS and the FAZ, but I might have to adjust my longer term upside targets.

Here are some recent articles that caught my attention:

• Banks brace for fallout on earnings
• With Volcker Rule, Wall Street Braces for Change

Having said that, Slovakia voted no on the Europe Bailout today, but the financials did not take a big hit. Perhaps some of the bad news is priced in on a short to intermediate term basis.

 The market is also relatively overbought on a short term basis, but did not sell off today. I wonder if this is another sign that most of the selling in the short to intermediate term is complete.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

The other side of my brain: emotions.

I haven't commented on the other side of my brain lately, the emotional side. Emotionally, I am trying to stay focused and relaxed. I am not trying to force the trade, and am just watching the market action and the news flow, and then responding in a manner that is consistent with my beliefs and my plan.

For 12 years, I sat in front of my trading screens nearly all day, and had very good success for the first nine. The last three were quite difficult though. Now that I am working in IT during the trading day, I check the market around 8am, and again around 6 pm, and once in a while will check in during the day. Overall, I am no longer caught up in the action and the drama of the day. I am much less likely to get in or out of trade because of shorter term jiggles or news flow. I think this has helped me maintain a longer term focus.

I have also noticed that the 'edge of my seat' anxiety that I used to feel while watching markets intraday, has been greatly reduced. It is still there to some degree, but the volume level has definitely been turned down. At this time, it feels better to trade in this particular manner.

I am reading a great book, Incognito: The Secret Lives of the Brain by David Eagleman. The author does a fantastic job in describing in laymen terms how lower level neural functioning significantly shapes how we perceive the outer world as well as how we make decisions based on our inner world processing, with much of this activity taking place at subconscious levels.

I changed my mind....

Three European banks (DB, UBS, BCS) have stopped making new swing lows, and in some cases are making new swing highs. After reviewing this, I have changed my mind and will replace the FAS sell order at 12.65 limit with 19.65 limit. I need to work on holding a piece of my position for larger gains.

I believe that a majority of the current pessimism towards the US financials is related to European sovereign debt issues. If some of the European banks have stopped going down, then the pressure on US based financials might be easing a bit (at least from this catalyst). There are other numerous other issues for US based financials, but we might see decent bounce, especially if the Europeans can setup that $3-5 Trillion dollar fund.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Trading update, Tuesday 10/4/11

Yesterday I edited my FAS entry order for a second lot, such that I got filled at 10.55 around 8:01 am. I got filled on a third lot at 9.35 just before the market closed.

I had an entry order for a fourth lot at 8.35, and today's low was 8.43, so I just missed that one. I am currently long 3 lots at an average of 10.32, just above the 10.16 after hours close.

I am currently offering 1 lot at 11.65 (just below the declining 20ma), 1 lot at 12.65 (just below the last daily pivot high) and 1 lot at 15.65 (just below the high of the current daily range dating back to mid August).

The FAS is still in a downtrend, but if it begins to make higher highs and higher lows, I will consider holding for a longer period of time. I have no problem building my position back up if the trend appears to change from down to sideways or up. A move tomorrow above today's high of 10.30, would be a sign that the selling pressure might be over, at least in the short term.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Trading update, Thursday 9/29/11

Changed the logic on the FAS entry order, and was filled at 8:00 am this morning at 11.25. Germany voted to increase the funding for Greece, and the market took that as an incremental positive.

I have added an entry stop limit order for a second FAS lot at just above today's high. I am not sure why, but I am feeling a bit more optimistic about the financials.

I have placed a FAS exit limit order at 15.65, which is just below the high made at the end of August.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Trading update for Wednesday, 9/28/11

As I mentioned yesterday, it looked like the FAS was getting ready to generate a daily swing sell, and the FAZ was getting ready to generate a daily swing buy.

Well today, both of those setups were triggered. The FAS sell is circled in red, and the FAZ buy is circled in green:

Since I am still on the fence about the the market impact of a possible $3-5 Trillion dollar fund for European sovereign debt, I decided to favor going long the FAS for a longer term hold, as opposed to long the FAZ for a shorter term swing. This continues to be my bias.

I have an order to buy 1 lot of the FAS at 10.35 or at just above today's high of 12.14.

Barry Ritholz's Big Picture blog had a good article today on the importance of taking the stop loss if you are a trader, a bank or a country. Managing risk is what keeps us in the game, and taking the stop loss lets us play another day.

Disclosure: No positions in the securities mentioned.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Oops, I thought I cancelled that order!

Trade maintenance is important and I got sloppy. Last night after catching up on the day's market activity, and realizing that the $3-5 Trillion dollar fund to support European sovereign debt issuers and holders, might be a game changer, I thought I had cancelled my order to sell my single lot of the FAS in the mid 12's. Well as it turned out, I didnt cancel the order and it was filled near the high of the day. Booking a profit is nice, but the order should have been canceled.

Looking at recent days of trading activity, the FAS actually looks like it is setting up for a sell here, and the FAZ is looking like it is setting up for a buy here, based on the swing trading tactics of Oliver Velez. Having said that, I am still concerned that this European fund could be a game changer. I will continue to watch both the FAS and the FAZ, but will be more willing to buy the FAS for a longer term hold, as opposed to buying the FAZ for a shorter term swing.

I have placed a FAS entry order for 1 lot at 10.35 and 1 lot at 9.35. I have no open orders for the FAZ.

Disclosure: No positions in the securities mentioned.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

A $3-5 Trillion what?

The always prescient Todd Harrison of Minyanville.com discusses the possible ramifications of a $3-5 trillion fund to backstop European sovereign debt issuers and holders.

Is this more medicine to mask symptoms or a cure of the disease?

To me it sounds like medicine, but of such strength, that it might begin to provide some intermediate to long term optimism for the financials.

I am long 1 lot of the FAS, and have cancelled my swing sell of this lot in the mid 12s. I have also canceled an earlier buy of the FAZ in the low 50s. This fund could be a game changer, so I want to see how the market responds to it over the next few weeks.

In my view, we still have slower global growth, and the increasing possibility of a recession here in the states, as well as a highly probable partisan presidential election cycle that will not inspire confidence in the electorate.

In any case, I will watch and wait to see if I want to begin buying the FAS for anything more than a short term swing trade.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Trading Update, Thursday 9/22/2011

My profitable exit order was hit yesterday for the FAZ at 63.65. I considered getting longer on a move above the high made on 9/20, but decided against it as the there wasn't enough of a pullback on the daily chart to justify the move. There might have been enough on an intraday chart, but I was focusing on the daily.

This morning in the premarket, I purchased 1 lot of FAS at 10.52. I am currently looking to exit this lot in the mid 12s. If the FAS moves against me, I will get longer. I still have 5 lots left to purchase. I don't believe that this is the big long term low that I have been looking for in the Financials, but I will get longer at predetermined levels if it goes against me.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

The Financials: Current Thoughts.

• it is my belief that the financials will continue to be a tell for the longer term direction of the overall market, with the SP 500 eventually moving in the same direction as the financials, though the financials will be more volatile...
• at this point in time, i believe the there is 35% chance that the FAS, will retest its March 2009 low (around 4.00), sometime by the spring of 2014, and that there is a 65% chance that it will then go on to retest its February 2011 high (around 34.00), 2-4 years after it hits whatever low it puts it....
• i am focusing on swing trading the financials as a means to profit from the above thesis: FAS (triple leveraged long, goes up 3:1 when the underlying securities go up; FAZ (triple leveraged short, goes up 3:1 when the underlying securities go down); the underlying securities are those contained in the Russell 1000 Financial Services Index....
• I believe there will be tremendous opportunities to profitably trade the up and down moves in the financials and that the FAS and the FAZ can facilitate that...these vehicles are not without risk, as they are not really designed for longer term trades, but rather for shorter term trades...but even with these risks, i will be using them for trading purposes, and if they begin to trade significantly out of synch with their underlying index, then i will re-evaluate them as trading vehicles....FAZ and FAS has traded out of synch with the underlying on numerous occasions, so past pivots points appear to have less relevance for present day trading, especially for the FAZ....the XLF could be another useful proxy for financial service company index....

 

Disclosure: Long FAZ.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

7/24/2009 noon update

NQ discretionary swing trade:

• NQ ran back up to the top of the base that formed from the overnight session and the morning high...got nervous when it started to sell off from this high, and exited the long position at 1587.50 for a net gain of 12 points (27 for the day)...
• nervous is the operative word here...perhaps fearful is a better word...i didn't want to give back my nice gain...i initially placed my target at 1597.50, thinking that the morning low was greater than the overnight low, so we had a slight uptrend in place...if the NQ could rally back to the top of the base (forming an ascending triangle), then there was a good chance it could break above the base and then rally to the 1600 whole number and i would exit at 1597.50...this was the thought process and the plan...
• however, my emotions started to get amped up after we hit the top of the base, and then started to head lower...i didn't want to give back my gains, so i hit the sell button...
• this exit was not part of the trading plan that i described this am...though i did book a nice gain, i did not execute the plan...i will give this trade a C+
• my plan could have had another contingency, such that i could take my profit at the top of the base....since i believed that the NQ could test 1600 today, i could re-enter on a break above the top of the base with a tight stop a few points below the break, or i could re-enter on a move back down to the low 1580's - high 1570's....
• right now i have an order to get back in at 1577.50...
• i am feeling somewhat jumpy as i watch the NQ move back up toward the top of the base again...maybe it will break above it, maybe it wont...i am hesitant to buy a break above the base as i feel like i am acting on the frustration of not trading the plan according to specs or not having a better plan laid out this am...i do not want to trade from a place of frustration, so i will not enter a long position today above the top of the base...
• i still want some longside exposure for a longer term move up, so if the NQ breaks above the base, then i will raise my limit order (which is currently below the market), from 1577.50 to 1582.50...

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

'Payrolls NDX' Generated an Entry Signal for Thursday's Close, 7/2/2009; however its robustness in realtime trading is unproven.

'Payrolls NDX' Generated an Entry Signal for Thursday's Close, 7/2/2009. This model is based on the behavior of the NDX on the day the Payroll report is released. It is due to be exited at today's (Monday's) Close unless its Money Management Stop is hit intraday.

This model of market behavior is unproven in real time trading. Prior to Thursday's Entry Signal, the model has produced only 18 trades within a 24 year window. The first 17 were used to build the model and trade #18 was the first one that was executed in real time. It was subsequently stopped out, and that was the only stop out in the 18 trade history. At the time of writing this post, the current trade is down about 1.25%.

This is one of the risks of system trading. Even when building a model with in-sample data, testing it on out-of-sample data, and approving it for trading (because the model appears to be robust), there is no guarantee the model has correctly identified a type of predictive market behavior that will generate profits going forward. If the model gets stopped out today, then we will have a situation where the only two stops in the 19 trade history of the model, are when it began to trade in real time. This does not inspire confidence. In the case of a stop out today, I will have to re-evaluate the robustness of this model and make an adjustment to my trading plan:

• reduce the position size for future entry signals
• rebuild the model
• stop trading the model

Here are some of the model's Performance Statistics:

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Number of Trades=18
• Average Trade Return=0.94%
• Average Winning Trade Return=1.39%
• Average Losing Trade Return=-0.63%
• Win Rate=78%
• Average Win/Average Loss=2.23
• Profit Factor=7.80

Disclosure: Long the NQU09.

Disclosure: The performance results shown above are for Model analysis purposes and do not include commission or slippage. The model is built on data from the NDX, but I trade the model with the NQ e-mini. Actual trading results from the NQ usually differ from the model results of the NDX, with the NQ showing somewhat weaker performance data. Nonetheless, I still trade this model with the NQ and when executed according to the plan, it has generated consistent profitability for me.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

The Holy Grail of Trading

What is the Holy Grail of Trading?

Is it that one strategy that never loses?

Is it that one Indicator that never fails?

OK, OK, we know (hopefully) these don't exist.

Maybe its the way Warren Buffet invests in companies? He is one of the most successful investors in world, so he obviously knows what he doing.

Maybe its the way George Soros fearlessly trades the FOREX market?

Maybe its the way Bill Ackman of Pershing Capital astutely navigated this historic bear market?

Maybe its the way Jim Simmons works with his team of 50+ PhD's at Renaissance Technologies to scientifically model and trade the global capital markets?

At least we know its not the disgraceful and treacherous way Bernie Madoff went about his business, to the ruin of all those that trusted him.

So if its the way Buffet or Soros or Ackman or Simmons trade, then why don't we just hire them to manage our money?

Well, if you are reading this, then perhaps it never occurred to you to have someone else manage your money. Or maybe we let some hedge fund guy or mutual fun gal do it for us, and they didn't perform up to their benchmark or our expectations?

But ultimately, I say its because we want to trade the market ourselves and have a crazy notion that we can do it as well if not better than these trading masters.

So if we are going to do it ourselves, we better have an edge, a plan so to speak. And we have to be able to execute this plan. If we don't then the capital markets of this world will eat us, eat us alive.

I suggest the key, the Holy Grail of trading, is to have a trading plan that fits our personality. In the end, if we are the ones that are going to push the buy and the sell buttons, then these actions must be derived from our own cognitive analysis of market behavior and then supported by our emotional intelligence of our internal process.

Yesterday, JE wrote in a very personal manner, about the struggle to find a trading strategy that fits his personality (http://myestradingjournal.blogspot.com/2009/06/off-hours-two-year-anniversary.html). In my view, developing a trading plan that fits our personality is the key to trading survival, success and ultimately mastery. For me, 13 years into this game, it continues to be a work in progress.

Here is a copy of my response to him:

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JE, great post and follow up comments...

i strongly agree that the key to trading the markets, the holy grail so to speak, is to have a trading plan that fits the trader's personality...

there are hundreds of trading strategies available fully detailed in books, magazines, online, etc...if all we had to do was pick one and trade it, we would all be millionaires in due time...however nearly all of us fellow traders are not...

why?

i think the key is whether or not we can psychologically/emotionally trade the plan....

can we take the trade when the signal is given?

can we exit at the defined profit target?

can we take the stop loss?

can we withstand the periodic drawdown?

can we sleep at night?

can we recognize our fear, our anxiety, our greed when the position is on, and still trade the plan, even if it means continuing to feel these emotions?

can we deal with the uncertainty of an unknown outcome?

i pose these questions because i believe they are essential emotional/psychological markers of our ability to be truly successful traders...

to achieve trading mastery, we have to answer 'YES' to each question...

currently, this is the center of my work as a trader, and it's a bitch...

adam

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