Sell Stop:(PWRD)

The Chinese MMORPG group got destroyed over the past couple of days after the government changed some rules so that gamers could no longer buy real world goods with in-game currency. My position on (PWRD), which was looking extremely promising, ended up at an 8% loss (the maximum I'll accept).

I started out the year well, and now I'm in quicksand. I've been here before. I'm pressing, struggling, and the harder I struggle the deeper I sink (more money I lose). PWRD was unfortunate because it was more a case of bad timing/unforeseen news than an issue with stock. The situation changed dramatically a couple of days after I got into the stock.

Nonetheless, this is a danger zone and I need to be very careful from here on out. I'm in two good stocks, (ARST) and (GMCR), and I'm watching (STEC) for the formation of a high tight flag pattern. Other than these stocks, I need to exercise caution and patience more than anything else right now. The losers are eating the winners alive.

New Buy:(GMCR)

Friday I thought I had the opportunity I've been waiting for to pick up (GMCR) as the volume started to come in while it retook the 21 dma after finding support at the 50 dma. I bought around $59 only to watch if fade throughout the day and get hammered in the closing minutes.

Most likely it was a Russell Index rebalancing move, but I don't know what that means for the stock today except that it leaves me in a precarious position. The stock is right near my stop, which I'm removing this morning for a bit until I see how the stock settles in and trades. This is the only situation that I ever leave myself vulnerable to a greater than 8% loss, but 90% of the time it's worked out in my favor - in fact I don't recall ever taking a loss greater than 8% on any position.

Of course, now that I've said that...

Quick Hit at the Open

I've said a number of times that I don't like leaving stop loss orders in at the open if a stock is close to stopping out, as the opening 15 minutes are often not indicative of a days action. Today this came true as I was whipsawed out of (PWRD) in the opening minute of trading - I wasn't watching the market at the time.

The stock promptly recovered and I purchased it back again at the same price, $30.15, adding a secondary buy at $30.74 as it made a new high. This stock has the massive ramp up in volume that has accompanied the winning stocks I've had in the past, we'll see if (PWRD) can do the same. I've definitely seen my optimism of earlier this year as I've struggled and made far too many mistakes. It's time to get back on track now.

Sell Stop:(TSRA); New Buy:(PWRD); Addon Buy:(ARST)

It was a busy day. I stopped out yesterday on (TSRA), which I had set the buy stop order wrong for. I've been on a not so smart streak lately and that just capped it off. After my strong start this year, I'm now just basically even and really need to be careful that I don't get into old habits of 'swinging away.'

Of course having said that, I made two new buys today... I've torn because I see so much opportunity - so many leading stocks are offering entry points here. One of my buys was (ARST) at $16.37 as it found support at the 50 dma for a second time since it's initial breakout. The relative strength on this stock has been improving, and it's worked for me so far, so I tried to go back to basics and add to what's working.

I also purchased (PWRD) at $30.15. This stock has been been popping up on my screens lately, and I just can't ignore the massive volume it's seen as it moves up the right side of what I see as a long and deep cup pattern. IBD says it has not offered a proper base, but neither did (FUQI) according to them. All I want to see is a stock clearing resistance on massive volume, and that's what I think I'm seeing with (PWRD). In fact, this quality was lacking in my recent failed purchase on (SNDA), which could've been bought better today than when I bought it last week. Back to my mantra, buy strength, not weakness.

Tomorrow should be interesting, with the low summer volume and post-FOMC-volatility.

Sell Stop:(SNDA), and a Rookie Mistake

Today (SNDA) stopped out as it dropped below the 50 dma. I still believe I'm going to have more success buying 50 day pullbacks around the moving average, but would be better off waiting until I see some volume come in to the upside.

I also made a pretty stupid mistake. I set up a couple of buy stop orders Sunday night, as often do in the evenings, but I had the price wrong and ended up buying (TSRA) around $24.26. I like this stock, but wanted to see it clear $25.14 before buying as I think I see some resistance around that area. Of course today was also not the day to take new positions in anything.

I'm not convinced this rally is done, but I've racked up 3 failed trades recently so I'm going to pause any new activity for now and just manage my current positions. The three failed trades are not (yet) in a row as I still have a successful trade working in (ARST), however common sense dictates caution at this time.

New Buy:(SNDA), Addon Buy:(ARST)

After keeping my eye on (ARST) for a few days after earnings I decided to rebuild to a full position in the stock again, picking up a third of a position at $17.44. The stock has been holding a nice zone during the weakness in the market lately, which I believe points to relative strength in this stock.

I also purchased (SNDA) this morning as it's finding support at the 50 dma. Recently I've decided to take a more aggressive approach with stocks finding support at the 50 or 21 day moving averages. I have more success buying early in this situation than late. Waiting until the stock clears a new high has shaken me out of several positions, and would've with (ARST) as well. It was the lower price I got on that stock that kept me in it through some of the volatility.

Additionally, as I watch the real leaders of this market, such as (FUQI), (STEC), and (GMCR) for example, they've given entry points at the 21 dma. I think that I know a titan stock when I see one, and should not be afraid to pick up shares at a pullback to the 21 dma with these stocks. I will still use my 5% stop loss and actually feel more confident buying at a key support level than at a pivot point that I've seen show little support to stocks.

The action of the market is still a question mark lately, but as long as we're in a rally I will continue to buy stocks, carefully. I think the low volume of the summer can cloud the signals the market is sending, and it's likely that we'll trail a bit sideways until the fall, but of course I can't predict that. I actually have two stocks on my watchlist that I'm willing to buy if they continue to act right, and then I will cut the weakest stock(s) from my portfolio and hold those that perform. Because I have no great confidence in my ability to pick an individual stock, I'd rather cast a slightly wider net and just let go those stocks that don't act the way I'd like. I don't mind using margin to do this for a short time, because I have my stop loss orders so tight. I just try to keep my capital risk fixed at any given time to an amount I can live with.

Sell Stop:(LFT), (ARST) Earnings, Analysis

(LFT) flashed a warning sign on Thursday when it came within a penny of the 52 week high intraday only to reverse and close down on the day. On Friday I stopped out of the stock for the second time.

It does not bother me to lose money on the same stock more than once. If a stock looks strong and stages strong breakouts, I'm willing to purchase it on a new breakout, even if I lost money on the last breakout. Why? The stock has no memory of me. I should have no memory of it. Some stocks may fail to breakout two or three times and then go on to huge gains, I saw one do this my first year investing, I'm afraid I can't remember the stock at this time.

Bottom line is I evaluate the fundamentals and technicals and if everything looks like it's in order, I purchase the stock. This was the case with (LFT), and looking back on it I don't regret the purchase. There may be an issue with the stock or it may be the market getting a little 'toppy,' either way I bought within my system and not all buys will go on to be winners.

(ARST) earnings came out after the close Thursday and they beat estimates by 38%, yet the stock dove 13% in after hours trading. That's a nerve wracking thing to watch, since it would've turned my 11% gain in the position into a 5% loss. Nonetheless, the approach I took was to leave my stop in place - I don't trust extended hours trading, institutions don't trade after hours and therefore it is often not a true representation of the supply and demand for a stock.

This said, it still was a difficult position to be in Friday morning, and I wasn't sure quite what to do - I never am in these cases, a problem which I will correct in my analysis below. For one thing, I don't like to leave stop orders in place at the market open when I know there is going to be this kind of volatility - the first 15 minutes can shake me out of a position only to see the stock move higher once it settles down. Obviously, the problem with this approach is that I have no protection from catastrophic losses.

The second issue I had was with my add on buy. As I've said, I want to have a 10% profit cushion heading into earnings day, for exactly this kind situation. With the size of my account, I've been setting my stops based on my cost basis - I'm a small enough trader that I don't want to have multiple commission charges where I can help. What this meant in this case was that my secondary buy was exposed to a greater percentage loss than I would normally accept.

In the end, I decided to take the stop loss off for the first 15 minutes and look to get out of my second position for a 5% loss if possible. The stock opened down 11% and came up to a point where I was able to stop out on the second position. The problem was, the stock continued straight up from there and turned the loss at the open to a couple percent gain at the close. Needless to say, I felt a bit dumb for selling that second position, but I had no way to know the stock would continue to rise.

With the partial sell of (ARST) and the stop out of (LFT) I was feeling pretty dejected on Friday. I'm back in the red this year despite my recent winners, and that left me wondering if I can ever really get this right. Whenever I feel that way I choose to take a hard look at what is standing in the way of my ultimate success, and correct it when possible.

Evaluating this year's activity, several things became clear to me:

• If I had followed my own rules, I'd be 3-3-2 for my record investing this year, meeting my goal of a 50% success rate and have more capital. It's the dumb stuff like shorting and buying (SNDA) nowhere near a buy point that is killing me
• If I have a potential big winner, I should at least let it test the 10 dma before bailing. I might've gotten an extra buck a share or more out of (FUQI) - I could still be holding it today
• With the small size of my portfolio, it makes more sense to set my stops once for the whole position off of the cost basis and then NOT MESS with it. As I said, it seems like I burn myself every time I try to meddle with my stops.

So once again it's good news bad news. I have a lot of stocks that I was close to profits on and bungled, and half the time I lost money it was simply because I didn't follow my own rules.

Unfortunately, it may be some time before I'm able to demonstrate I'm learning my lessons. It looks to me like this rally is topping and it may be some time before we rally again.

Sell Stop:(SNDA), (FUQI) Sold too soon

Thankfully, (SNDA) stopped out for a 5% loss today. I'm glad I lost money on this trade, because as I said I never should've made it. Not going to say anymore about it, because there's nothing more to say.

After further review, it's obvious I sold (FUQI) too soon. Hindsight is 20/20 but one thing that really bothers me is that the stock hadn't come near it's 10 dma or 21 dma at the time I sold it. I've had my botched handling of (SOL) in my mind for a year and that clouded my judgement on this trade. The problem is that I didn't recognize some key differences:

• (SOL) was a laggard in it's group, (FUQI) is a leader
• (SOL) had several violent shakeouts, (FUQI) had never traded down more than 5% intraday from the prior day's close in the time I owned it
• (SOL) failed to find support at the 10 dma and 21 dma, (FUQI) never touched the 10 dma in the week that I owned it
• (SOL) was purchased at the end of a bull market, (FUQI) may be at the beginning of a new bull market

I still have much progress to make on recognizing the environment as well as the health of the stock I own. I'm not ready to strictly follow the 'hold for 8 weeks rule' for potential big winners, but in the future I'll at least let them test the 21 dma and see how they act. If I'd done that with (FUQI) I'd be up another 20% on top of the 20% profits I took.

With that being said, I'm going to stop regretting this trade. This is a process of continuous improvement and if my mistakes are 20% profits I'm satisfied.

Addon Buy:(SNDA), New Buy:(LFT)

I recognized some time ago that orders executed in the first half hour the market is open can end up causing trouble. The first half hour is often quite volatile, and can act very differently than the rest of the day. This was the case Friday morning, as the market opened on a tear and triggered the buy stop for my second and final position in (SNDA) at a price of $64.22. Shortly thereafter the rally faded and (SNDA) ended up closing down a couple percent on the day.

The weekly chart still looks good and the downward move was on lower volume, below average in fact. Nonetheless, I have to admit that if I had it to do over again, I would not purchase this stock. It may go on to make me money, but that's not the point. I preach over and over that the system is what matters, yet I got on a bit of a good run picking stocks and just like that I purchased (SNDA) no where near any kind of legitimate buy point. This time it may work, but it's not a system and over time that kind of behavior will not be successful for me. I'm in the stock now and the market is seeing a strong rally so I may get away with this mistake.

What made things even clearer to me was that (LFT) staged a massive breakout on Friday and I was fully invested. The capital I had put into (SNDA) should've been waiting for a true breakout like (LFT) had. I used my margin to purchase (LFT) and I'll be very cautious with this. Basically I will evaluate (SNDA) and (LFT) daily and look to sell one or both of them if they're eating up profits from my other position(s). In a rally working as well as this one, I don't mind going on margin, but we'll see if it burns me.

Finally, (ARST) had a phenomenal day. It dumped over 10% early, coming within a few percent of my stop loss order, only to rebound off the 10 day moving average and close up a 45 cents. Very bullish behavior. If it can hold $18 a share going into earnings on Thursday I'll be in good shape.

Year Two Review

Somehow I missed my two year anniversary of my re-dedication to trading. May 27th marked the end of my second year. In short, I'm very pleased with the progress made in my second year when compared with my first.

I should clarify my definition of progress. I'm not as concerned about percentages and dollars as I am with improving the way I trade and the system I trade with. As it turns out, when I improve the latter the former follows right along in place - as expected.

From a quantifiable standpoint I did meet my goal of beating the S&P 500 after taxes and cost of investing materials. Not by a lot, but I beat it. I will now update this goal and work to beat the return I get on my IRA mutual fund portfolio. This portfolio represents the best return I can get with a passive account, and therefore if I outperform that I am money ahead. I don't have a timetable on reaching this goal, and do not expect to do so by the end of year three. However, I should be well on my way and improving my system and results continuously.

I was thinking over the past week about some of the things I have learned during the past year or two:

• It's a marathon, not a sprint - most of my mistakes have been a result of attempts to get rich quickly
• It's easier not to lose capital than it is to make it back - my first year I created a deficit for myself, and it may take another year or two just to break even
• All the hours of study and research really do pay off over time - I didn't see immediate results from the time I put in, but eventually all the information I've accumulated has begun to converge
• Keep an open mind and be willing to listen - anyone can teach me something useful if I'm willing to listen
• It's the system that matters, not the stock picking - this is not an ego trip - If I succeed it will be from discipline, not because I'm a great stock picker

Where I've improved:

• Documentation - I'm getting better about maintaining my watchlist - this is very necessary for constant improvement, I should be able to determine which patterns have been most successful for me (and least) along with other details on stocks I've purchased or passed on
• Chart Reading - I don't follow strict CAN SLIM guidelines for chart reading, and that's fine - I've used what I've learned from CAN SLIM and other readings to consistently identify chart patterns that have worked for me so far this year
• System Building - I've begun carefully documenting my buy, sell, and position sizing rules
• Discipline - I've made an effort to stick to my rules

Where I need continued improvement:

• All of the above - I don't think I'll ever feel that I'm so expert on any aspect of investing that I cannot improve
• More that I don't know yet - A lot of the lessons I've learned have been in hindsight - who knows what else I'll realize I could be doing better

While this is by no means an exhaustive study of my past year trading, I enjoy marking the time passed and thinking about about where I've been and where I am now. Without question this blog has been instrumental in my progress, and I look forward to maintaining it for years to come.

New Buy:(SNDA)

I bought (SNDA) today as it hit a new high on earnings news. The stock was not coming out of any kind of consolidation, but I thought I would take a shot at it because often a stock breaking to a new high on earnings news can have a very powerful move.

In this case, it didn't happen. ADR's took a hit across the board today, so perhaps that dampened (SNDA's) move, but regardless I'm down a couple percent. My stop is at 5% so we'll see what happens tomorrow.

On the positive side, (ARST) made another new high and even traded above $19 intraday. At this point I have the cushion I look for prior to earnings next Thursday, but of course that could change over the next week. As long as I'm up at least 10% in the stock I will hold it through the earnings release, otherwise I will sell it.

Sell:(FUQI)

Hard as it was, I sold (FUQI) today. It climbed above my $14.10 profit target early in the morning, so I set a stop loss order there. It dipped to that point briefly and then took off the rest of the day, eventually trading above $15 intraday.

Of course it's difficult feeling like I've sold too soon, but I did so for solid reasons, and it's always better to sell too soon than too late. If (FUQI) is a monster stock, it will set up a proper first stage base and give me an opportunity to purchase again.

The important thing is that I've now had a couple of 20% winners in a short period of time - a first in my investing career. My record is now 2-5-2, and 3 of my losing trades were my insane attempt to short the S&P 500 - boy would I like a chance to change that history.

At any rate, I finally have some evidence mounting to support a growing sense of confidence (healthy, not over-confident) that my system can work. I have a long way to go yet, but if you want to build a house you have to start laying bricks one at a time.

Another stock on my watchlist beat earnings estimates after the market close today, and I'll buy it if it gaps up to a new high at the open tomorrow. I owned this stock briefly at the start of this rally, it's been one of the main leaders, and one time I don't care about a stock being in a proper base is when it gaps to a new high on earnings news. In that situation the move is often so powerful I don't mind taking a chance on a stock that's not in some kind of consolidation.

(ARST) made a new high today, not on the kind of volume I would've liked to see but nothing to worry about yet. The weekly chart still looks really good, just needs to close this week with above average volume and I think we're in business.

Addon Buy:(ARST), and Looking for an Exit

The market certainly looked bullish today. (ARST) triggered my second buy order a day after the first purchase. I had this order in at $17.36, 10 cents above the prior high. The stock closed below the buy point at $17.09 but I'm not concerned at this point. My cost basis is well below the buy point from my early purchase at $15.60.

The stock I'm concerned about is (FUQI). It rocketed up today reaching my 20% profit threshold a few minutes before the close. I wasn't really prepared for the stock to gain this much in just one week, and by the time I began to attempt to enter the sell order it had pulled back, closing at $13.85. Now I'm back in an emotional dilemma. On the one hand, the stock is acting extremely well and could be held for eight weeks since it's gained 20% in just one week. On the other hand, it's had a huge move in a short time, is over twice the 200 dma, and is ripe for a pullback.

So what to do? A 5% trailing stop sounds like a reasonable idea, but that's at $13.53 and I wouldn't want to get shaken out in the early morning volatility only to see the stock launch yet higher. Having said this - I've felt the pain of watching almost all my gains in a stock evaporate while I was waiting for it to head higher. Some gains are better than no gains at all.

I will most likely let the first fifteen minutes of the market play out and try to put an order in after that to protect my profits. A 15% gain will be just fine and it's important that I stay on track and continue to log gains on my winners.

The 50 dma should cross the 200 dma on the Nasdaq tomorrow or Wednesday, I'm anxious to see if there are any fireworks.