Bermudan Option's Trading Journal

Starting ChoiceTrade acct value = $950
Starting Think or Swim acct value $3786
Total Value: $4736

December 13th 2010
Total Value: $4779
Profit/Loss since Start: $43

January 15th 2011
ChoiceTrade acct value = $917
Think or Swim acct value $3636
Total Value: $4553
Profit/Loss since Start = $183

January 30th 2011
ChoiceTrade acct value = $1105
Think or Swim acct value $3638
Total Value: $4743
Profit/Loss since Start = $5 (woot!)
Percentage change since last update = +4%

(Click here to go to the start of live trading)


Intro
Currently unemployed. Trying to make $25,000 to achieve day trader status. (Edit: Got a part time gig now to bring in some more income)

This thread is not a fanclub or a place to piggyback picks. If you don't do your own DD, then you deserve all of your losses and none of your profits. The intent of this thread is to keep me accountable, get feedback from others I can work on and document my journey to living comfortably with financial freedom. Hopefully the stuff I learn along the way can be helpful to others as well.


Trading Outline
I plan on using stocks and, once I get a better handle on them, options.

I have split my money between two accounts. One account (through ChoiceTrade) is smaller but geared towards higher risk/speculation. I will be buying penny/volatile stock and eventually put/call options.

My second account through TD Ameritrade, (now it is solely through Think Or Swim) will focus on more risk-averse plays (from a trading perspective anyways). This account will primarily consist of overnight and swing trades. Once I have more $$$, I will sell cash/stock covered options in this account as well.

<Insert Portfolio Spreadsheet here>


Booking it:
 

-A Beginner’s Guide To Day Trading – Toni Turner

- Big Money, Less Risk: Trade Options – Mark Larson

- Fooled By Randomness – Nassim Nicholas Taleb

- *** Futures, Options, and Swaps – John Kolb

- Getting Started in Options – Michael C Thomsett

- Market Wizards: Interviews with Top Traders - Jack D. Schwager

- Investments: An Introduction (8^thEd.) - Herbert B Mayo

- *** Options as a Strategic Investment – Larry McMillan

- Profit With Options – Larry McMillan

- Reminiscences Of A Stock Operator – Edwin Lefevre

- Talent Is Overrated – Geoff Colvin

- The Crowd – Gustav LeBon

- The Daily Trading Coach – Dr. Brett Steenbarger

- Trade Your Way To Financial Freedom –Dr Van K. Tharp

- Trading in The Zone – Mark Douglas

- Trend Trading for A Living – Dr. Alexander Carr

- Understanding Options – Michael Sincere

- Sources of Power: How People Make Decisions – Gary Klein

*** = Currently reading

Edited by Bermudan Option - 2/17/11 at 7:00pm

Current Play: Metro PCS

Rumors about acquiring LEAP, people's dependency on phones irrespective of class, as well as some other ideas has me long on this stock. Unless it tanks of course.

I entered the trade at 8.85 when the market was tanking but PCS was doing good. Should have expected it to dip eventually and could've bought the stock at a discount but didn't exercise willpower because it seemed invincible bucking the trend. When I entered the stock had recently broke through resistance and so it had a new support it had tested.

However, here is yesterday's chart:

Since I have gotten in, the stock has had trouble breaking the $9 mark or staying above it. Damn whole numbers. Also after testing the new support, it fell back down.


Today the stock is at 8.51. It dipped and rallied back to breakeven and dipped again. I want to hold the stock for an extended period of time but if the second support level is broken, I am jumping ship. I think that there was too much pub on PCS and so by the time I got onboard the party was already over. I like the stock but I may need to exit it and look for a reentry point in the future.

• Resistance: Currently, the $9 mark is the foremost concern. Also the $9.40 and again @ $10.

• Support. Right now the trendline support is at $8.40

• Stop limit: Gonna set it at around $8.15 for a little wiggle room.

Learned an expletive-load about TA over the last couple days @ HSM. I read over 30 pages @ 20 posts per page of Simonyadig’s breakout thread and thought about reading the entire thread from 2007-present but a lot of the older charts either don’t show up at all or they are in real time so they aren't relevant to the time period they were originially referred to. I wish the charts didn’t continually update, especially since they are being displayed for momentum and day trades but I still learned lots from the interactions and advice in the thread that I saved in my trader’s mental rolodex - and a Microsoft Word doc.


Also I watched Stock Jock-e’s videos, and read a bunch of other threads, specifically Mitzter’s “How to play a breakout” and Chan’s “Money Management”. The consensus I am getting for the majority of what I read is: a) screen for a decent volume/consolidation b) buy when the stock breaks through resistance c) have a bulletproof stop loss if things go south.

As for PCS, I am learning a lot through it. The more I read up, the more reckless and random my trading has looked so far. I can’t tell you how many times this weekend I opened the chart up in my TDA Strategy Desk and just stared at it like a girlfriend that I didn’t know as well as I thought I did. It has a resistance level @ 8.80 that I didn’t recognize even though it has been bouncing off of it ever since I’ve owned the stock. It has been uncharacteristically volatile the past week or two (more the market in general than the stock specifically though) The stock could be labeled as trading in congestion or trading in a larger-than-normal range recently. The stock closed on a Doji Friday and Monday’s open can be a reversal day… or it can be meaningless.


I didn’t set any trading guidelines when I entered the stock so I am indecisive on how I want to play it. Recent reports say that PCS and LEAP have stalled on talk yet again. I see potential in PCS from a logical standpoint with no-contract phones as the future but again, I may have showed up to the party right when the cops came. Technically speaking, it is still in an uptrend and their recent movement can be seen as temporary consolidation. I’ve thought about exiting the trade and I won’t. If I pull my money out, it is just going to sit on the sidelines until I get up to speed in the next week or so and general market fundamentals improve. I am gonna tighten my stop loss a little, not much, just a couple cents.



Status Update
• Refresher course on TA- 100 pages in on the book. Going to hit up Chicago Public Library and get some serious reading/note taking done this week

• Devise a method for screening stocks- Came across a good method in Mitzter’s thread. Will do some backtesting. Also I know there is at least one I haven’t reread in Toni Turner’s book that I can test out as well

• Buy a book on Options- Shelving this until I grasp trading stocks better.

• Get a job so that losses are not lifestyle altering- Going to do some running around tomorrow

• Get familiar with TD Ameritrade's Strategy Desk- Read about half the manual. It is mostly explaining the backtesting process. I might download ToS and give it a whirl to see if it is more to my liking

• Learn more about Business in general- Plate is full with TA currently

• Draft up guidelines and follow them- Chan's thread gave me good ideas/guidelines. I will post up my Trading Plan later on.



To Do List
• Fieldtest various indicators and find what appeals to me as a trader

• Really really really read about Vol. until I fully understand

• Work on being a disciplined trader: I think to help me with discipline I might go see that new Jackie Chan karate movie coming out. Because as we all know, if anyone knows about discipline, it’s an actor who has gone from being the young buck in kickass karate films to horrible movie ideas like being the secret Kung Fu nanny or headlining yet another Karate Kid installation.

Okay fellas, I got stopped out of PCS today. I am indifferent to it. Okay not really, I’m never happy to lose money, but I live to play another day so I can't complain. Ironically I lost the same amount on this play that I did a week of blackjack in Vegas. That's a sign. I am not here to gamble my money away so I need to approach each trade as such. Things are going to look more business-like, planned out, and less 'young, dumb and full of cum' as one of the nicer blackjack dealers referred to me as

Stats:
Enter: 8.84
Exit: 8.23
Profits/Losses: Lost just over 4 percent of my trading principal in that trade. No mas of that. 2% stop losses as soon as I enter trades from here on out

Lessons Learned
•Now that I have Trading Guidelines, no more recklessness.

•Don’t take it personal, the market isn’t out to get you... just your money

•First loss always the smallest, if it doesn’t feel right, hightail it out of there. Eat the commission because it is the least of your worries

•Enter on bounces and consolidation, not congestion

•Pay attention to the market internals daily, especially when you have a position in play

•Inexperienced traders jump into stocks that have shot up recently and are heavily publicized. Now that I have gained experience on it, I won't do it again. Buy the rumor sell the news.




Thats it for now, back to reading and studying TA and the markets. Deuces

The World Cup has slowed down my progress but I am leaps and bounds better with each day. Everytime someone asks an opinion on a stock whether here, or on youtube or CNBC, I like to pause things, make my educated guess and then see how my opinion measures up to the more experienced traders. Also, I decided to read Simon's breakout thread in its entirety and have noticed some stocks picked from over 2 years ago are primed to break out again.

Status Update
• Refresher course on TA- 230 pages down in Toni Turner's book. My highlighter is running out of ink and I love it.

• Devise a method for screening stocks- I think I have a good grasp of SimonYaDig's method of picking stocks and I can search for consolidation through TDA's command center. I need to work on spotting reversal patterns better though.

• Buy a book on Options- Bought a bunch of used books for cheap ($5 and under) and a couple of them are about options. I won't read the option related books until a couple months of regular trading. I cross-referenced the books with customer reviews on Amazon and none of them are amazing. They are mostly older versions with references to the pre-decimalization pricing. I'll read them, but no more random purchases. Here is the list:

The Bear Book: Survive and Profit in Ferocious Markets - John Rothchild
Profit With Options - Lawrence G McMillan
Electronic Day Trading to Win - Bob Baird & Craig McBurney
How I Trade Options - Jon Najarian
Timing the Market - Curtis Arnold

• Get a job- Phone interview sometime this week for a job, need to send out another resume today

• Get familiar with TD Ameritrade's Strategy Desk- Read the entire manual. I need to work on the backtesting syntax but damn... I was just fooling around with the feature and it is evident how helpful backtesting is. You backtest almost any idea possible. Enter on golden crosses and exit on negative MACD readings, or perhaps buy on a % increase in volume and sell when the RSI dips below 15... if you can think of it and have a little patience to learn the syntax, you can backtest it.

As for my general set up with Strategy Desk, I am pretty pleased. These are my workspaces:

~ Daily/Weekly Chart comparison - See any Long term trends?
~ 60/15 minute chart comparison - See any Short term trends?
~ Hypothetical watchlist - Microcaps and pennies like Simonyadig's thread. Too risky for me currently but never hurts to see how I grasp the concept.
~ Actual watchlist - Less volatile stocks in potential breakout consolidation or potential reversal patterns
~ Newsroom - Level 2 Screens, news releases, Open/Hi/Lo/Close/Vol/ of a specified timeframe (Not charts, just numbers in a spreadsheet)
~ Market Internals - Shows the TICK and TRIN as well as one of the indexes of my choosing. Couldn't get the S&P E-mini chart to work as suggested in a book.

• Fieldtest various indicators- Still need to read up on them. The front runners are Stochastics, MACD and RSI. Also contemplating a combination as the book I am reading suggests using Stochastics to enter trades and MACD to exit them

• Really really really read about Vol. until I fully understand- I grasp Volume like never before. I am far from a master, but I can make educated guesses when breakouts will fail, when interest is coming into a play, etc

• Work on being a disciplined trader- Sat out last week's rally even though my TICK and TRIN pointed towards a positive day to enter a play. Will not trade until I have finished reading current book.

Going live Monday.

Back to playing for keeps again. The study break has done me some good and given me time to regroup. Plan my trade so I can trade my plan. Yadda yadda insert cliched phrase here.

TD Ameritrade is my broker of choice. Once the money clears sometime next week I will be using ChoiceTrade as well. ChoiceTrade is far inferior but I am using both simultaneously to keep my trading timeframes/risk in trades separate. TD Ameritrade will be used for swing/position trades and ChoiceTrade will be used for day trading and penny stocks. I have around $4,700 of an initial $5,000 left at my disposal so the majority will be in the TD account and about 1/5th will be in the ChoiceTrade account.

To Do List
I finished reading the book and so I am going to slow down for a day or two. This weekend I am going to get some rest and prep for the upcoming hectic week. Here are the few things I decided to put on the agenda:

• Research and Pick an Indicator

• Trim down the watchlist

• Reread my TA notes

- 2-3 % Risk for TDA account on a swing/position trade

- 10-15% Risk for CT account and Penny stocks

- For both accounts: a Risk:Reward ratio of 1:3 or better

- No trades for more than 40% of entire TDA account or 30 % of CT account

- Protect my Principle

- Sit out if market is indecisive or against me via: VIX/TICK/TRIN

- Make sure there is no expected news while you are in a position: ie earnings, unemployment, quadruple witching, etc

- Trade to trade well, not to make money

- Don’t short stocks in uptrends or go long on stocks in downtrends. High probability plays FTW

- Take all/partial profits when: the stock waffles, nears resistance or reaches intended target

- Compare stock to its industry, sector or some benchmark index



(Questions from Trade Your Way To Financial Freedom)

How much time during the day do you have to devote to trading?
Currently I have the entire trading day to trade. If I get a job I will need to become more familiar with setting conditional trades et al. I am looking at finding a potential evening job which will allow for me to trade during the day.

When you are trading, how many distractions can you expect to have?
People contacting me on the cell phone during trading hours and me surfing the internet randomly are my two main concerns. Both happen fairly infrequently though.

How much time do you expect to devote to developing your trading system, to doing your personal psychological work, and to working on your business plan for trading?
It is my new job. I wake up and watch the markets until close and then go to the library and study.

What are your computer skills? What skills do you need before you begin this trading venture?
I can read the manual that accompanies the software... I don't believe unique computer skills are required to become a successful trader.

What do you know about statistics?
Nothing. I haven't seen a correlation with statistics and trading to the point that I want to learn Statistics anytime soon. I have enough information directly involving trading to worry about.

How would you rate your market knowledge?
Slowly increasing. Initially it was information overload and I was learning a little about everything but not grasping concepts well enough. Now I am starting to learn more concentrated information and applying it to ensure I understand. I still have a lot to learn before I am confident in speculating on the market with any type of conviction.

What are your psychological strengths and weaknesses especially in terms of trading system development? I have a confident persistence in life. I do get put off eventually but for the most part, I believe that I am not easily deterred. I like to theorize already so I am up for testing ideas and hypotheses for an efficient trading system. On the negative side, I have been guilty of procrastination when it comes to back-testing or learning certain aspects but I am working on that.

How about your strengths and weaknesses in terms of personal discipline?
I believe I am very disciplined and won't take trading personally. I understand that there will be hot and cold streaks alike. However, I can see myself potentially overtrading in the beginning or even making trades in haste instead of doing the pertinent DD based on my paper trading account so I need to nip that in the bud.

Do you tend to get compulsive (that is, do you get caught up in the excitement of trading), do you have personal conflicts (that is, do you have a history of conflicts in your family life, at your job, or during past trading experiences), or do you have any emotional issues that constantly crop up, such as fear or anger?
I remember watching the 1 minute charts for like 30 mins straight on my first trade. I like to think I don't obsess like I used to but I need more experience in trading to determine any traits or conflicts that need to be resolved.

Based on your personal inventory, what do you need to learn, accomplish, or solve prior to beginning trading? How will you do that?
- Create a more mentally stimulating workspace environment
- Scans and DD nightly. The market's close does not signify 'knock-off time'
- Gain more experience trading with actual money and then reevaluate objectives and tradings traits
- Stop running away from concepts or techniques that look to be time-consuming or difficult to learn.

(Taken from Trade Your Way To Financial Freedom)

What is your advantage or edge in trading? What is the particular concept that you are trading that gives you an advantage?
TBD. Still learning and testing so I have no edge to speak of yet.

How much money do you have personally? How much of that money could you afford to lose? How much risk can you afford to take on a given trade?
I honestly say that I can lose it all but it would force me to get a job very quickly and it would cost me my independence from family. Losing it all would cost me socially, but it won't have me living on the streets. With that said, I am willing to risk 2-3 % for my TDA account and 10-15% Risk for my CT account. Regardless of what I win/lose currently, I want to be able to trade my account for a living in the future.

How much money do you need to make each year? Do you need to live off that money? Can you make more than you need to live off so that your trading capital can grow?
I plan on getting a job in the near future to help build capital and offset losses. Once my portfolio has more buying power and I become a more consistent trader, I will reevaluate whether I can live off trading profits or if I should stick to the nine-to-five hustle.

Are you being realistic or are you expecting to trade like the best trader in the world? Your system may work as expected but you could easily have 10 losses in a row? Could you tolerate that?
I am job-searching for this very reason. I do not expect to be making it rain in the club with my trading profits anytime soon.

Do you have time to trade short term?
Currently, yes.

How much social contact do you need?
I don't need much. I can be sociable during AH.

Can you work by yourself day after day? Do you need one or two other people around?
I am an independent kind of guy so I can do, it no problem

What do you expect to make each year as a percentage of your trading capital?
Short-Term Goal: Enough so that I didn't wish I left my cash in the bank to earn 1% interest
Mid-Term Goal: Outperform the S&P
Long-Term goal: Enough to live comfortably

What risk level are you willing to tolerate in order to achieve that?
TBD

What is the largest peak to trough draw down you are willing to tolerate?
TBD

How will you know when your plan is working, and how will you know when it is not working? What do you expect from your system in various kinds of markets? Trending? Consolidating? Highly volatile?
TBD




To Do List
Get confident with the idea of shorting: I'm here to make money. My gain will always be another person's losses so I have no qualms about jumping in the Bears' corner. Plus all of the talk about double dips and economic crises won't stress me out as much if I am making money either way. I will start papertrading some short plays on investopedia's simulator.

Alright. Here are some stocks I am looking at entering. I'm typing up my analysis so that I can remember why I am interested in the play and anyone reading understands as well. I know that TA is subjective so throw your two cents if ya want.



I see a double bottom formation (aka a lopsided breast formation) that started in mid May and completed itself in Mid June. The stock is currently consolidating, which is supposed to happen after the formation is complete but it is dipping a little more I expected today.

How it reacts today is important. I am banking on the 50MA coming into play. It acted as strong resistance back in May and so I am expecting it to act as a powerful support level as well. If I had more experience, I might buy now and set the area below the 50MA as my stop loss limit but I am expecting the stock to break out and this environment has me more pessimistic so I am waiting for the closing day of the stock after it breaks through 6.80 with volume and looks to hold onto the territory position.

A couple decent closes and there is likely to be a golden cross with the 20MA and 50MA as well

Similar pattern here as in EDR but a much more textbook looking double bottom formation. Looking for the stock to consolidate a bit more and a golden cross in the near future as a potential.

I am unsure if the double bottom started and ended around the 32.60 range and the subsequent movement and volume spike this month was the confirmation of the finished formation OR that the 'neckline' for lack of a more appropriate word is around the 34.00 mark.

I suppose it doesn't matter too much because I view the recent activity and volume of the stock is bullish either way, the RSI is getting getting close to oversold but that doesn't mean much currently. I am hoping the stock consolidates a bit before attempting to go higher but if it pushes above 35.8 area on decent volume I will pull the trigger and scoop some up

Formed somewhat of a rounded bottom. I added the 200 MA to this particular chart so you can see the main problem standing between a strong upward push with ABAT although there is resistance levels here and there as well. I do not like that the stock broke down twice in May but I do like that there was a new support at around 3.1 formed the second time around. A breakthrough of 3.6 could be great but I will need to tighten my stop loss if the 200MA is still menacing overhead when the stock starts moving.

Yup. Pretty much all the double bottoms tanked. EDR still has potential for a play but nothing amazing. I am not looking for perfection but no point jumping in these stocks ATM.

Back to papertrading account until something looks good enough IRL. Gonna do a lot of scanning this weekend

Alright, still not live trading yet. I have been papertrading on Investopedia as if it were live though. While I am half-heartedly searching for a job that guarantees a paycheck, DD is my current job: The night before a trading day, I compile a list and select 2-3 stocks with a bullish appeal and 2-3 bearish. The following morning I set my alarm for the market open or after the initial volatile half hour of trading. I usually have a focal point on the day like watching Level IIs, drawing trendlines, Time of Sales, watching how a stock moves, etc.

After the day is over, I review the stocks in my journal with thought processes for the stocks that I played and a new analysis for the stocks I didn't play that stand out based on their daily action. I figure out if the trends or my outlook have changed and then select the best 2-3 bullish and bearish for the next day. I also check out HSM posts and do my own TA on any charts that catch my eye. Then I watch an episode of Fraiser and reboot myself to do it again the next day.

Multiple that by 5 and you have a weekly journal from yours truly. When the weekend hits, I finally sleep in but I also reread the week's worth of analysis and brainstorm and create theories.

The poor workman blames his tools so although Investopedia is not the best paper-trading place imaginable but I can manage. I am down about 5% in the account after about two weeks but that is actually not bad at all to be honest. I have made careless mistakes no doubt, but I have learned a lot so a lot of it is just initial jitter that I am glad I am practicing on my paper account. I have bought the wrong stocks, set buy limits instead of stops resulting in terrible fills, etc.

Howver, paper trading on that site involves is a 20 minute time delay and an additional 15 additional hold rule before you can trade a recently purchased stock-if the stock is liquid enough- so trades have literally an hour to turn against me before I can play them. Couple that with the fact that MULTIPLE times so far, the system has just frozen for 45 minutes to an hour and you have too many variables to really gauge day trading ability. That accounts for a portion of the Ls I have taken so far. I thought about gearing more towards swing trading but who wants to hold any kind of stock overnight in this environment...

That stuff sucks about the paper trading account but there are over 100,000 people in the competition so if you are interested you can join here. There is literally no interaction between traders, which is pretty weaksauce but I like to keep note of my daily rank to see how I am progressing. Last I checked, I was ranked like 113,181 out of 129882.


I kinda scoffed when I read a post, i think by simonyadig, talking about 6 months of paper trading before going live but now I can see why. I doubt I can wait 6 months before I dip my toes in but I am glad I decided to papertrade while also investing time and effort into it and recommend it to everyone before going live. However, people say there is a big emotional difference between paper and real so I will want to factor that in soon enough. I will figure out some kind of goal to set on my paper account, and when I reach it, I will let yall know and go live.

Thanks for the recommendation danchoi3. I guess I am not looking for a better paper trading experience, I'm just trying to validate my losing account % number lol. I am bored of paper trading, for a lack of a better word I guess but not ready mentally to go into the markets live. I mean I can, but if I know I lose an average of 5% of my account every two weeks, whats the point?

As for options, they are still above my pay-grade anywho at the moment but I do intend on learning more once I get my heavy duty reading-hat on. I did go to an intro to options seminar by TD Ameritrade a week ago and the idea of spreads and covered calls sounds like great ways to minimize my risk and maximize the potential for my small starting capital though. I got about two books to get through and then I'll start up on options.

Hey danchoi03. I started reading Understanding Options by Michael Sincere and I'm ninety pages in so I understand your previous post now and can respond to your last comment .

I agree that covered calls wouldn't suit me financially coz that would tie up too much money. I feel the same way about LEAPS too... I can't see myself holding onto anything more than a weeks or two at most. I think earlier I grasped the concept of covered calls in theory but not in actual execution .

As for the spreads that Will does, its too early for me to commit to any tactics but I'll read up on his thread to get an idea. I have read trendtrader89's thread and I was following Rebel's thread until he went FX, and I did like their approaches to options.

I want a sound knowledge of options before I start paper trading them, let alone trade them live. That's the great thing about being unemployed though, I got plenty of time. Imma grab 1-2 more books on options and also read through some established Options journals like Rossj, Riley and Arthur's. Thanks again danchoi03



Okay peoples I finally finished reading Trade Your Way to Financial Freedom by Dr. Van Tharp. I blame the World Cup for it taking so long but I hunkered down the past week and knocked it out. Great book. I'll reread it down the road to figure out my expectunity and see what changes I need to make in my system.

Also I read Zen and the Art of Poker in the last 2-3 days. A few guys in the online trading community said it translated well for traders and I have to agree after reading it. Good book.

I have decided that I will go live once my paper account reaches a return rate of at least 10%. Delayed gratification will help me to treat my paper account like a real account even moreso.

Speaking of which, in my paper account I am going to focus on playing stocks I would play IRL instead of NFLX or a stock valued higher than $25. Also, I don't have the $$$ to be a pattern day trader so i need to utilize more swing trades in my Investopedia account. Initially I got burned by holding overnight so I had just been flipping intraday or selling before the close but that is a skill I won't be able to use often with the Day Trading Rule.