What I'm Working On

In addition to my daily homework on the market and my positions and watchlist I try to make some time to continue reading books that may help me improved. I've been a bit 'stuck' on Trade Your Way to Financial Freedom for some time. It's academic and a bit dry - though I think it's a worthwhile read.

To greatly oversimplify the content, the book is aimed at helping investors develop as mechanical a system for trading as possible. In fact, many of the topics are directed at program trading (automatic computer trading), though the principles of disciplined trading apply just the same to an individual trading manually.

While I do not necessarily intend to program trade, I would like to take what I can from this book and apply it to my trading with the goal of becoming more disciplined. Additionally, I may have found a nice convergence between a skill I need to develop for my career (I'm a developer for an Identity Management application) and my trading career. I need to learn a software language to further my career. I'm going to be learning JAVA as this is the language most commonly used in my area.

I can put this to use as well in my trading, as I recently had an idea spring out of a frustration I have with IBD's Custom Screen Wizard. What is lacking from this application is any method to gather or store (in a time efficient manner) the information from the screens. As important to me as the current data is, I find historical data equally important. I would like to graph and trend the information on stocks like the price when the enter my screen, how long they stay on it, and the price when they drop off of it. I could do this by exporting the data into spreadsheets every day, but that would take too much time.

What I plan to do is write an application that will automatically execute my screens each weeknight and load the data into a database. I'll then come up with ways to manage and display this data so that over time I should be able to draw some mathematical conclusions about the potential for a stock when it makes one of my screens. Eventually I would hope that I can translate this into a mechanical trading system. For now though I've got a lot of work to do learning a new programming language.

I also ordered another book I want to read - Jack Schwager's Market Wizards. I need some inspiration. I think I'm doing well now but I want to read about some people who've made it - sometimes it's hard not to get discouraged after a string of failures, and I find these stories help get my positive outlook back.

Back to Cash

A bit of a delayed post here. Monday's market wipeout took out all of my stops and put me 100% cash. After the day's action IBD called the Market in Correction.

I'm not going to do anymore 'self-flagellation' as my friend puts it. I've made every mistake you can make investing. I've analyzed it and talked about it here.

Actions speak louder than words and that's why I'm not posting any big promises here anymore. I've refined and documented my rules and they are sound. All that's left is to watch the market and follow the rules.

On a positive note, I'm amazed at the response I've gotten to the forums I set up. It turns out people actually read this blog, and almost everyone who contacts me expresses that they can relate to my situation and feels we have quite a bit in common. It certainly makes any serious undertaking easier when you meet others in a similar situation - and it's great to see that there are a number of us all trying to succeed in this venture.

I believe we can do a great deal to help each other along the way.

New Buy:(LFT)

Before addressing my latest trade, I want to spend a few moments on the past week, as it was quite a roller-coaster ride.

I made the mistake a couple of weeks ago buying (TNDM) within a week of it's earnings announcement. I was so enamored with the stock that I just wanted to own it, even with the additional risk involved. I'm not a lucky person, so I need to keep the odds on my side. I lost money on that trade.

I bring this up again because the next stock that really caught my attention was (BWLD). This stock had the ingredients I look for most - strong fundamentals, leading relative strength line, obvious signs of accumulation, and a price near an all-time high. The setup was almost perfect.

Almost.

(BWLD) broke out before earnings day. It did so explosively, advancing 10% past the buy point. It was difficult to sit on the sidelines when I had been targeting this stock, but every rule I have has a good reason behind it and is designed to help me succeed in the long run. As it turned out, (BWLD) disappointed the market with it's earnings report, and promptly gave back the earlier gains. The important thing is that I stuck to my plan.

My next prospective buy was (GMCR), which showed up on my new favorite screen Wednesday night. I want to digress for a moment and talk about this screen.

A few weeks ago my coworker and fellow CAN SLIMer (you can visit his blog here) brought up to me that he had been working with a new screen based on stocks with high relative strength. We had been noticing so many so-called 'leading stocks' lag the broad market that this was idea was brilliant in it's simplicity. This screen got right down to the real leaders, based on their price action (what else matters).

Within another day or two I saw on http://www.investors.com an old statistic that something like 85 to 90% of the greatest performing stocks of all time had an EPS rank of 90 or better and a Relative Strength rank of 95 or better at the time they began their run. At this point I got the message.

I threw together my own very simple screen, adding some basic criteria:

Earnings Per Share (EPS) Rating
From 90 to 99
Relative Price Strength (RS)
Rating
From 95 to 99
% Change in Latest Quarter's EPS vs. Same Quarter
Prior Year
Greater than or equal to: 25
% Change Latest Quarter's Sales
vs. Same Quarter Prior Year
Greater than or equal to: 25
Company's
Industry Group Rank
From 1 to 80
Current Price
Greater than or equal
to: 10.000
Current 50-Day Average Volume(1000)
Greater than or equal to:
300

Out of the thousands of publicly trade companies, this screen has not returned more than six in the few weeks I've been using it. The companies that do make it through this screen are performing very well, almost without exception. Some day I will try to base my mechanical trading system on this screen - but that is a post for another day.

So, I'm very positive on this screen and Wednesday (GMCR) made the cut after being adjusted for the earnings released that day. This setup was just as close to perfect as anything I'd ever seen. The stock was already rallying, earnings and sales were accelerating, the product is booming, the company beat estimates, raised guidance and announced a distribution deal with Walmart. If there ever was a no-brainer, this was it.

The stock had recently cleared a three weeks tight buy point and pulled back during normal trading on Wednesday. After hours it was up 20%, and there was no doubt it would gap up at the open. The buy rule on a break-away gap up open is that you can buy up to 10% beyond the pivot point (normally you don't buy more than 5% beyond this point). I set a buy limit order at $61.

The stock opened at $63 and never looked back. It traded as high as $79 on the day, a gain of 50% from the prior day's close. It was gut-wrenching. I felt as bad missing that buy as any time I can remember investing. I've had my fair share of struggles, I've made so many mistakes, and I've lost money - my family's money - that I intended to make returns on. I badly wanted a success, something positive to build on.

The only way I'm able to come to terms with it is to imagine a big league batter facing the best closer in the game - one he's had no success against. He takes the first pitch - a strike - and now the count is 0-1, he's behind. He flails at the second pitch - now 0-2 - he's further behind and in danger of pressing. Instead though, he calls time and steps out of the batter's box. He gathers himself and remembers his training. He calls upon the hours he's devoted to practicing his art. He shuts out the noise and steps back to the plate. He sees the pitch, and it's like the pitch he waited for his whole life. He connects and the sound and the feel are perfect - it is a home run, there is no question. As he rounds first base, he looks up to see the strong winds carry the ball just outside the foul pole. The home run never was - he heads back to the plate.

How does he respond?

There are going to be many ups and downs in my trading career. The best thing I can do is try to level these out. Bad is never as bad as it feels, and good isn't either. It's a business, and I won't be successful with every outing - that's why I'm building a business plan to make sure I'm successful more often than not.

Which brings me to today's purchase. Last night I scanned my High RS screen again and of the five stocks on the list one was within buy range - (LFT). The stock found support at the 50 dma Wednesday. I thought that I could catch it back near the 21 dma around $23, but it opened above $24 and never looked back. The pivot point was $26.09 and my buy stop was filled at $26.15. The stock made a run to $27 and pulled back to close above the pivot point, up 10% on the day on twice it's normal volume.

(LFT) is a Chinese ADR and could be volatile, but has a lot going for it. It's an IPO public less than two years. The fundamentals are strong, it's already had a 40% advance from an ugly cup pattern, and it shows plenty of signs of accumulation. The overall market is due for a pullback, which gave me pause, but until I can see the future I'll buy good stocks at proper buy points and take my chances with the overall market direction.

(ARST) had a low volume pullback this week. It was a very orderly move, but I'm a bit nervous as it's getting closer to my stop loss order. If it finds support at the 21 dma my position should be secure, but if it pulls back the the 50 dma again I will get stopped out for a loss of 1%.

This weekend I hope to find time to do some more work on my trading plan. The more homework I do the more confident I feel.

Setting Your Own Objectives - Part 1:Self-Assessment

I've promised myself for awhile that I was going to make the time to go through the process of creating a trading plan outlined in 'Trade Your Way to Financial Freedom,' and tonight I'm going to follow through. I'll admit that I can't see the value in all steps of the process at this time, but I'm certainly willing to give it a try and see what I come away with. I don't expect to agree with everything I read, but I will learn from it regardless.

How much time during the day do you have to devote to trading?

• One to two hours, mostly after the market is closed. I can sometimes look at the market during the day, but not on a reliable basis.

When you are trading, how many distractions can you expect to have?

• Quite a few while the market is open, my primary focus is my full time job. At home in the evenings I am usually able to work with minimal interuption.

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?

• As much time as it takes. With a wife and a young child I have to balance my time, but this only means it will take me longer to spend, say, 100 hours of study - that might take me ten weeks where someone else could cover it in half that time. I will still get there, just more slowly

What are your computer skills? What skills do you need before you begin this trading venture?

• My computer skills are above average. Potentially I could write my own database and/or programs if this would be beneficial. I'm not sure what skills I need until I learn more about formulating a trading plan.

What do you know about statistics?

• I took some courses in college for my finance degree, but that was over ten years ago. I have no practical experience, and would need to brush up in this area

How would you rate your market knowledge?

• One step above novice. I know more than those who know nothing. I've done extensive reading on successful traders, particularly those who 'inspired' Bill O'Neil's CAN SLIM method. Most of my attention is paid to price and volume action, particularly weekly charts. I also watch the 10, 20, 50, and 200 day moving averages and the Relative Strength line, along with other signs of accumulation and distribution. I do not make use of other technical indicators at this time.

What are your psychological strengths and weaknesses, especially in terms of trading system development?

• I have a great desire for a 'mechanical' system - I would be much more comfortable if choice was replaced by a set of rules. I think this is a strength.
• I am a good starter but a poor finisher. I tend to be distracted by each new potential method or improvement, and this could prevent or delay me from finalizing a system. It could alternatively be a positive because I will be looking for constant improvement.
• I believe I will succeed - I think this is the more important ingredient.

How about your strengths and weaknesses in terms of personal discipline?

• I lack patience and discipline, both of these will be needed for long term success.
• I am humble and self-aware - I am able to identify my faults and therefore improve upon them.

Do you tend to get compulsive, do you have a personal conflicts, or do you have any emotional issues that constantly crop up, such as fear or anger?

• Yes to all of these. I sincerly hope that I can improve my entire life experience as well as my trading by getting a handle on my emotions. I am apt to get 'excited' by trading when it's going well, and depressed when it's going poorly. That's why I started the blog, why I do all the reading I can, and why I'm working on this trading plan now. I want to mitigate (if not eliminate) these weaknesses and accentuate my strengths.
• Fear and anger have definately driven far to many of my actions in my life, and I don't think things have ever gone well when I've acted on one of these emotions. Certainly not in trading.

Based on your personal inventory, what do you need to learn, accomplish, or solve prior to beginning trading? How will you do that?

• Well, it's a little late now, as I've been trading for nearly two years now. It's very clear what I need to learn - to take the emotion out of my decisions and run my investing like a business.
• I've already taken some steps toward this end, like this blog and reading this book and creating a trading plan. I'm not sure what will come next, but I'm open and looking for ways to improve always.

New Buy:(ARST)

Just off my time in the penalty box I made a small purchase today of ARST at a cost of $14.00 per share. This is just over the $13.95 buy point, and I waited throughout the day until about 3:30pm to get that price - I really didn't want to chase the stock up much past the pivot.


I read the chart pattern as a large, deep cup with a handle that formed with a buy point of $10.10 from the week of January 16th. The volume dried up very nice in the handle looking at the weekly chart, and then exploded on the breakout the week of March 6th. This was the week this new rally began, and it's a positive sign that ARST was one of the first stocks to breakout.

The stock easily advanced 50% from this breakout in just six weeks. Last week it tested support at the 50 dma and came directly off of it, setting the new buy point as the recent high of $13.95.

What I don't like about (ARST) is the relative strength line lagging a bit. What I do like is the massive volume surge as the stock has made this move. It looks to me very reminiscent of (TNDM), (SNDA), (NTES), the other notable winners in this rally.

I would say more than any other factor I now look for that trademark surge in volume with a ratio of something like five weeks of accumulation to one week of distribution as a stocks works on the right side of a base. If the stock breaks out to make an all time high like (TNDM) and (ARST), that's even better. If it's a recent IPO like (TNDM) and (ARST), again - even better.

I've set a 5% stop on my purchase. I still feel the need to build myself a strict set of documented rules for stops and other aspects of my trading. I think without a strict set of rules I will spend too much time (and money) second guessing my decisions. I'll tighten up the stops when I should let a stock run, and vice versa. I think I'm better off picking a fixed percentage and using it on all my purchases. It's something I'll have to spend more time working on.

So Where to Go From Here?

Over the past month I bought two solid stocks, (SNDA) and (TNDM), and stopped out on them after making a conservative decision to trail my stops due to a quick distribution day in this new rally.

Then I reminded myself that I still lack patience and discipline by throwing some money away on (SDS), an ETF that works like a short position in the S&P 500.

So what now? Well, the shorting debacle reinforces my need to formulate as strict a system as possible for myself, with all 'rules' clear and well documented. Before my recent vacation I began some work on my trading system using 'Trade Your Way to Financial Freedom,' and I feel it's critical for me to renew those efforts. I intend to begin posting my work here shortly.

The market may even be seeing the beginning of a new bull market as I type this, or we may be in a bear market rally. It doesn't really matter - at some point there will be a new bull market and the more prepared I am, the more I stand to profit. I've dug myself into a considerable hole in my first two years trading, and I owe it to myself to put the effort in required to dig back out - and then start producing the gains I'm working for.

My goal remains to trade successfully enough to retire from corporate America. I've got a long, long way to go, but I view this like quitting smoking. The only way to get 10 years smoke free is to pick a day and get started. What happened in the past is only valuable as it helps me to improve today.

-Geoff

New Buy:(SNDA)

It's been so long since I've posted anything here, I'm glad I remember how to type!

I've had a few friends ask me about the lack of activity, and have to admit I'm glad there's someone besides me who reads this blog.

I try to make it a point not to come here and post my general thoughts and opinions about the market. For one thing, they are almost always wrong. I'm guilty of getting caught up in the moment, and often get dragged a long a bit by whatever the market has done the last day or two. More importantly, my opinion just doesn't matter. It's best to stay out of the habit of formulating predictions and opinions about the market as these can only serve to hurt me.

I believe the only thing that matters is the actual action of the market. That means until we get a confirmed rally accompanied by leading stocks breaking out of sound patterns, there really isn't much to talk about. Cash is king.

To that point, I'm proud to say that I think it's been something like three months since my last stock trade. I've let a few 'confirmed rally's go buy without making any trades, because I just didn't see the necessary leadership. In a market this bad, patience is the best practice. Capital preservation is the most important thing. I've been very successful in this, my only losses are the cost of research materials.

Having said that, I could've made more productive use of this down time. I intended to define a business plan for my trading using my current read - 'Trade Your Way to Financial Freedom.' Unfortunately, a very stressful period at work took almost all of my time and emotional energy for the last six months or so, and the rest went to my family (as it should be).

So, I still have this homework to do, and for the first time in awhile I actually feel up to tackling it. I look forward to commenting on the process here.

Now, about the market. For some reason, last Friday got my attention. It felt 'different.' I certainly don't invest money based on a feeling, but I started paying closer attention to the market's action. I began to look for a follow through day, and consider which stocks on my watchlist seemed most promising.

Today we got the technical follow through day on the NYSE indexes (Dow and SP500). I say 'technical follow through) because it met the definition of up at least 2% in higher volume than the prior day. Whether it will develop into a tradeable rally remains to be seen. We'll need leading stocks to break out of sounds bases and make nice gains.

I liked the action of the market over the past week enough that I made a first and second purchase of (SNDA). The relative strength line on this stock is great, it's in a group with momentum and has a running mate in (NTES), the fundamentals are there and I like the price and volume action in the chart. I made my initial purchase just above the $33.70 buy point at $33.75. I then pyramided up with a smaller purchase at $34.54, 2.5% above the ideal buy point.

We'll see what tomorrow brings, I have to admit it's nice to be back in the market after such a dreary period we've seen. Whether it will end tomorrow is anyone's guess...

Sell Stop, Penalty Box, and Year in Review

I took a much needed break over the holidays so I neglected to post my stop out on (ACM) on 12/18 for about a 4% loss. As I said in my previous post, this was not unexpected and I immediately put myself in the penalty box for three weeks, which means I will not trade until at least 1/8.

I think the penalty box is a great limiter to prevent further losses. It eliminates ego from the equation. It doesn't matter if the problem is the overall market, my picks, timing, buy points - something is wrong if I stop out on 3 or 4 stocks in a row, and if something is wrong I need to take a break.

In this case, I think the last few months of the year there was far too much chaos in my job to allow me to invest effectively. Work took all my time and energy, leaving nothing for my family let alone a second job investing. Under these circumstances, it was probably a mistake for me to invest.

Additionally, we continue to languish in a bear market that is whipsawing even the most seasoned traders. The only safe bet at this time is the one not made. I still think we will see the S&P 500 trade down to 600 before it ever makes a new high, though that does not mean we can't have a tradeable rally before we sink to that level. As always, I'll try to keep my thoughts and feelings out of the equation and evaluate the price and volume action of the market indiscriminately.

At some point I'll need to dedicate some time to a thorough review of my trading last year, but for now I'll simply say that I showed improvement but I still have a long way to go. I'm pleased that most of my losses this year were actually costs of research materials, from trading I actually only lost $600. I made some mistakes and I could've earned money this year, but I'm moving in the right direction. I greatly outperformed my mutual fund benchmarks, mainly because I spent most of my time in cash. This is further confirmation that the first rule of investing is capital preservation.

This year I should soon make a career change that will afford me more time to refocus myself on investing. I intend to use this time to get back into the 'Trade Your Way to Financial Freedom' book and build a business plan for my trading activities. I expect this next step in my development will yield favorable results.

I wish anyone reading this a Happy and Prosperous New Year!

-Geoff

New Buy:(THOR)... and a Confession

I have to admit I purchased and stopped out on a stock last week: (EBS). It's a great stock I had no business buying. It was nowhere near a buy point and I basically just took a stab at it, stopping out the very next day. I didn't post about it because I was so disappointed in myself - but of course that's not the right way to handle a mistake. Instead I'll post it here and use it to remind myself not to be such a dope next time.

I do see a real change in the market the past week and think we could have a tradeable rally here. Suddenly the market is acting well, shrugging off bad news and powering higher.

My problem is that work has me so busy right now I probably don't have the time, attention, and emotional fortitude to be in the market. I've had 4 days off in the past 5 weeks, and I'm exhausted. It's taken a toll on myself and my family. I'm doing what I can to change the situation and believe I'll be in a different organization early next year, but for now life is very chaotic. This is not the ideal scenario for investing.

It's hard enough for me to keep a level head under normal circumstances, now I find emotions dominating my investing actions. I have a nice watchlist but I was plagued by doubt and missed the buy point on (ACM) while I purchased (THOR) at $29.68 only to see it close slightly below the $29.60 buy point at the end of the day.

Sticking with the theme that the system is where my success will come from, not some grand stroke of genius on my part, I'm going to have to find a way to handle this market without emotion or just stay out altogether.

Rude Awakening

It's a pretty overwhelming task to comment on the market these days. What we're seeing is certainly historic, perhaps a once-in-a-century event. Though we don't have the kind of sell-off that occurred after the tech bubble burst (yet), we're looking at a global recession that is possibly beyond anything we've seen before. The 'VIX' - or volatility index - which measures fear in the market is DOUBLE the previous high level it had reached in almost 20 years it's been measured. Despite this, each time the market looks like it will capitulate, it instead reverses and closes up or down more moderately. Some of this is due to constant governmental interference (necessary or not depending on one's personal views), and some of it has no real explanation. This market seems to befuddle even the most experienced traders.

I still expect to see the S&P 500 in the 700's, and possibly below. I think the PE ratio for the S&P 500 is still too high for the current earnings expectations, which will continue to be revised downward. Of course I don't buy or sell stocks based on what I think, but I do still follow the behaviour of the market and look for 'setups' to the upside or downside. I don't think there is too much harm in forming expectations of what the market or an individual stock will do, as long as I base my decisions on what is happening, not what I think will happen.

As bad as things are the CAN SLIM method has kept me in cash most of the past year. The few times I've invested in rally's I'm made small gains or stopped out for small losses. I'm happy with my risk management and capital preservation this year. Outside of the cost of trading materials, I'm down only a few percent on my trading portfolio.

Friday I used all of the money in my Traditional IRA (about 1/3rd of my trading portfolio) to purchase a fixed income bond fund (LSBRX). I use this same fund for my son's educational IRA, and I've watched it drop from $15 to $10 a share this year. I would never trade a stock this way, but at a yield of close to 9% now and an all time low on the share price I find this an excellent opportunity for that portion of my portfolio. I believe it will provide solid return by the time I want to put that money back to work in stocks. Meanwhile, the remainder of my portfolio is cash.

Over the past year I've given a lot of thought to the concept of risk management and capital preservation as the most important factor in trading. Since I began investing, I was always aware of the potential for a catastrophic loss on an individual stock, but felt I had this risk managed well with my stop loss orders (never more than 8% below my purchase price). I knew this system does not remove all chance for a catastrophic loss, but felt that it mitigates the risk sufficiently.

Then last night a friend emailed me about a stock that I've owned a couple of times in the past few months - (THOR). This stock has held up better than anything I've seen through this bear market, and was on the top of my watchlist. That is, it was on the top of my watchlist. My friend brought to my attention a news release after the market closed on Friday, where in short (THOR) stated that:

...wear and fatigue related to its implanted heart pump may require surgical replacement that could potentially be fatal...

...In five of these cases, patients expired as a pump replacement was not feasible...

Shares dove to $12 in after hours trading.

IF I'd still held (THOR), there isn't a thing I could've done to foresee this event or protect myself from the price move after-hours (same might even be true if the news came out while the market was open). This stock looked great and showed all the signs of institutional support, then without warning lost half of it's value. That is a very sobering realization for me.

I really still haven't come to terms with this. I plan on doing some research to see if there are further steps I can take to protect myself. I'd like to think the method I use had me out of the stock before the news came out, but couldn't this just as easily have happened if I owned the stock during a rally? I owned (THOR) a week ago - couldn't they have released this news then? Certainly the answer is yes.

This is a further reminder to me what a serious thing stock investing is. It's not nearly as 'fun' as it was when I began - and I think that's good. It's a business, a second job, and a risky one. I need to approach it without emotion, follow my rules, and be aware constantly that the market is still very random and can humble me at any time. It certainly got my attention yesterday.

-Geoff

Post Fed Thoughts

I've been taking this new rally very slowly, and so far it's keeping me out of trouble.

I have a mindset I use to try to keep myself on track. Before I make any new buy, I ask myself: 'If this trade loses money, will I be disappointed in myself?' Obviously any losing trade is disappointing - but they do occur. My goal is to avoid any mistake within my control that leads to a losing trade. Since I started this blog I've broken my own rules at times, and there's no excuses for that. As I stated recently, those times are over.

For instance, I considered today adding to my position in (UTHR). I'm not a big fan of the add-on buy, but the stock seemed to be gaining momentum and moved up in big volume. I could've added shares up to $115.58 within the CAN SLIM rules. However, I knew the FOMC was meeting today to discuss interest rates, and at those key points discretion is the better part of valor. It's too easy to lose money and too hard to make it, so I continue to temper my aggressive nature and work toward a more patient and disciplined approach.

In the past year the market has displayed a good deal of volatility around these Fed decisions. Today the market finished up nicely in a powerful move on great volume - but the wise play I think is to see what it does tomorrow. I expect it to fade some, and that may provide an opportunity for another buy or it may lead to the end of this young rally. As long as I remain patient and measured in my approach though, I will have no regrets however it ends up.

-Geoff

Sell Stop:(CLR)

I stopped out on my (CLR) position today at $75 for a 2% loss.

I could write a bunch of fancy sounding jargon about a capitulation day, about how the stock reversed and closed in the upper half of the range, how I was shaken out, etc...

It's all bull crap. I opened my last post with the only statement that matters "I broke the first rule of CAN SLIM investing today..."

Until I have the discipline to follow my own rules, I will never be a successful trader. It just isn't any more complicated than that.

That's not all that's required to be successful - but it's the first step. Nothing else will work without that foundation. No amount of effort or knowledge can save me from myself, until I decide to follow the rules of the system I claim to be using. Though I've said it before, I hope this is a turning point. I hope I've embarrassed myself enough to finally check the ego at the door and trade a machine - without hopes or fears and always putting the odds as much in my favor as possible.

That's all for now - I'm going to keep watching for a follow through day, and when it comes I'll be ready. I know WHEN to pick a winner - during a rally. I know HOW to pick a winner, I've owned a few. I know when to SELL a stock - and I put it in writing. Now it's time to start acting on what I know, not what I feel or think.

-Geoff

Sell Rules

Now that I've been in cash for a couple of days, it's so hard to believe I held on to (SOL) for so long. The market is clearly broken for a few weeks now, I clearly should've just taken what profits I had left when it began correcting. It's so nice to watch now with nothing on the table, no stress with the ups and downs of the market. Of course I'm still a bit bruised from my mistakes, but I'll have years to make up for them.

Tonight I want to publish the sell rules I'll use. I'm going to list the defensive sell rules and the offensive sell rules. They are, like everything else in this venture, a work in progress - but I will follow them to the letter until I have a good reason to make a change. I'm going to also attempt to post them in short form on the sidebar of the blog website, for quick reference.

As I've stated, many of these rules are copied verbatim from a post made by williamsj55 on the investors.com forums. They are his interpretation of the CAN SLIM sell rules, and I could certainly rewrite them in my own words but I see no need. He got them from Bill O'Neil, who got them from many other traders and his own experience through the years. I've adjusted them as fits my style, but made no fundamental changes.

Defensive Sell Rules

• Sell anytime a stock falls 7% below my purchase price. This is described in 'The Successful Investor' (also by Bill O'Neil) as the "3-to-1 profit and loss percentage plan." In short, it means that if I lose 7% on two trades for every one that I make 20% on, I can stay in the game with relatively small loss of capital until my pick percentage increases.
• When one of the major indexes (Nasdaq, S&P 500, or the Dow) flashes 5 distribution days in 4 weeks, I will immediately sell any stocks up less than 20%. If I am holding any 'big winner' stocks (up more than 20%) I will put a 5% trailing stop order in for them.
• The defensive sell rules trump all offensive sell rules.

Offensive Sell Rules

• Take profits on a stock that increases 20-25% in more than three weeks. I will use a 5% trailing stop loss once a stock reaches a 20% increase from the proper buy point, in hopes this will minimize my downside and allow the upside if it wants to run. If the trailing stop is hurting more than helping I'll adjust my approach.
• If the stock shoots up 20% from a proper buy point within 3 weeks, I will try to hold that stock for 8 weeks. I will place a stop at break-even to ensure I don't lose money, but unless the market enters a correction I will leave the stop there and evaluate the stock after three weeks.
• I will sell if a stock makes a climax top. Warning signs for a climax top are: greatest weekly price spread, exhaustion gap, and break of the upper channel line. I'm not going to go into detail about these here.
• I will sell if a stock slashes it's 50 dma on heavy volume and fails to rebound above it within a day or two. In most cases, my other sell rules would have me out of a stock before this could happen.

That's it for now. Pretty simple really, but should keep me out of trouble if I follow them. A cursory look at my past trades indicates strictly following these rules would have me in better shape than I am today.

-Geoff

Sell:(SOL)

Today I completed the round-trip journey I began with (SOL) in April. I bought it for $15.25 then, watched it rise to $29.48, and then watched it right back down to $16 where I sold today for about a 5% gain. I can assure you the ride up was more fun than the ride down.

The only review I think that's necessary for this trade, and for (SOHU) which I never posted a review for, is on the sell side. They were both great buys and bad sells.

There is one sell rule I'll incorporate that would've preserved much of my gains in both of these stocks, and that is once the market enters a correction, I will put a 5% trailing stop on any big winners I hold. This will allow them to run if they want to, but protect my profits.

This would've had me out of (SOL) around $22 for about a 45% gain and out of (SOHU) around $75 for about a 15% gain. This compared to 5% and 9% gains respectively is reason enough to employ the strategy. Add on the reduction of risk being in cash and it's clearly a sound rule.

Yes, there will be times when I stop out and the stock powers higher after that. My goal is to book profits on trades, not to ride every stock to it's ultimate peak and sell there. Learned that the hard way recently.

The most important rule is still to invest with the market, and this sell rule incorporates that into my strategy. I'll post my full rule set here in the next day or two.

On a personal note, I'm pretty embarrassed and demoralized by this trade. There's an analogy that I thought of tonight and will use to work past this:

There's a quarterback who's led his team down the field in short time, doing everything right, and positioned them inside the red zone ready to score. Instead he makes a rookie mistake, forces a pass into double coverage, and throws an interception which the other team returns for a touchdown. Instead of bringing his team 7 points (assuming the PAT) closer to victory, he's put them down 7 points (you know).

It's still early in the game, and the team can't afford to have their quarterback lose confidence. He has the ability, he just made a mistake. If he focuses on the mistake, he will inevitably make more. If he learns from the mistake, focuses on his training, and remains patient, he can surely bring his team back and win the game.

This is how I see myself. I pressed, and I got burned. It doesn't mean I can't do this. It means I still have a lot to learn about patience, ego, and trading stocks.

It's a helluva ride...

-Geoff

Time to Reflect

When I start to feel down about my failures investing I usually like to take up to a week to just process my feelings. That happened to me recently, as I had a swirl of emotions over my results so far this year.

The way that (SOL) has come apart really shook my confidence, it is a disappointing situation. However, with no intent to excuse any mistakes I make, I felt it was important for me to review my successes as well:

• I'm positive on my trading activity this year. My portfolio is down due to cost of my IBD subscription and the chart and screen tools. Based on stock trading only I'm up. Compare that to an 18% drop last year, and with how much worse the market has been this year, and that shows I'm making progress.
• I haven't lost capital in (SOL). Yes, I gave back profits, but I haven't lost capital and I have my stop set where I won't. My ratio of winners to losers is much better this year - my mistakes have cost me profits rather than capital.
• I haven't compounded errors. In the past if I started feeling stress about a loss or a position that was turning on me, I would look to put more money in play to 'make up for it.' This year I've shown patience and discipline. I realize the main goal now is to avoid catastrophic mistakes - the profits will come soon enough and more than make up for these relatively small gaffs.

With a return to a positive outlook I sat down and thought about how I can avoid being in this position again in the future. I've arrived on two main action items.

One is I am going to type up some sell rules and keep them with me at all times. It's not enough for me to have them in my head, I must put them down on paper and keep them with me. They are not 'mine' - in fact they are the interpretation of Bill O'Neil's CAN SLIM sell rules by a poster on the IBD forums who goes by the handle 'williamsj55.' So I'm using one person's thoughts on another person's ideas - which really came from several other people... This is not about reinventing the wheel. On the contrary, I'm looking for the tried and true, time-tested methods.

I will take these sell rules and modify them slightly to fit my style and trading personality, and then I think I'll post them here. As I've said before, it's good for me to put all my rules in writing here, I'm far more likely to follow them that way.

The second decision I made is how to handle SOL from here. I still think the fundamentals are there, but I can't keep sitting on this thing just waiting to see what happens, so I came up with a stop loss plan. It's really not based on anything technical, it's psychological. Each time the stock closes above a new dollar milestone, I move the stop up to $2 below and leave it there - no matter what. So, with it closing above 18 on Friday I moved the stop to 16. If/when it closes above 19, I'll move the stop to 17, and so on. This does two things. One - it relieves me of a decision and the associated stress. That's what I needed to move on from this one. It's mechanical from here. Second, if it does shoot up to 23 again, I won't watch it go back to 16 again - I'll stop out at 21 with a decent profit. If it retakes the 21/50 dma's and holds them for some time, I may consider treating it like a winner again, but for now it's just another tough lesson.

-Geoff

Emotions in Motion

I find myself in exactly the situation that the books I've read describe.

I decided to hold (SOL) for the long term play, and since that decision the market, the solar group, and the stock itself have all changed significantly.

The Dow is testing it's March and January lows, and the third leg in this bear market could be over soon or might just be getting started now.

The Energy-Other industry group, which includes solar, is still ranked in the top five at IBD, but a lot of the leadership in the group is coal companies, and the solars are not flying like they were a couple months ago.

Then there is (SOL)... Man, a lot can change in a couple of months. This stock just can't get a bid. I've gone on about the situation ad nauseum, so instead of writing more about that, I'll talk about how I react to it.

It's not good. I've fallen prey to the trap that I've heard so much about. I had a stock that was up 90%, and it came back on me. I'm up 25% after today's close. Now I badly want for the stock to recover and succeed, both for the money and so that I was 'right' - of course being in this situation it would seem I'm wrong already, no matter what the stock does from here.

I don't want to sell and admit defeat, but each day I watch the stock weaken, in total disbelief. I stare at the live chart waiting for the institutions to pile back in. Honestly, I'm not kidding - I really curse the fund managers as I sit there. Sometimes it feels personal, like they hung me out to dry. How dumb is that???

I watch the news wires for any inkling of why the stock's in trouble, for any article that could spur a comeback - all the while knowing this is NOT how I've learned to invest.

Why, then, haven't I just sold? I can't tell you that my motivation is clear and right, but I hope the reason is that I don't want to make a bad situation worse. The stock still has some time to retake the 50 dma and get back on track, and yes - I'm concerned that it will do so the moment I pull out. There has not been any massive selling in the past couple of weeks, in fact the weekly chart is showing a contraction in volume this week. I'm probably kidding myself, but it might be wearing out of sellers.

It's easy to be disciplined and make the right decisions when everything is going well. Or, maybe it's not - because when everything is going well is the time to sell, and I have a lot of trouble doing that. It will take weeks or months to pass before I can review this saga and make some definitive rules for myself from it, but it's clear I'll have to do that. I can't build a career out of investing if I end up in these points of indecision - right or wrong I must determine what I will do in any given situation.

I know enough successful investors that go 100% during any correction that it seems that might be the right course of action. I could even trail a stop behind my winners once we enter a correction, so if they continue up I'll get the move but if they drop I'm out.

Right now I can tell you that anything looks preferable to being in this position again.

-Geoff

Roller Coaster

I've improved on my patience and discipline from last year, but I still have far to go managing my emotions. I believe if I'm still trading stocks in thirty years, I'll still be working to manage my emotions better.

Several weeks ago, when the market's rally began to struggle, I made a decision to hold all of the stocks I owned at that time: (SOL), (SOHU) and (GU). (GU) promptly rolled over and stopped out for a loss, but (SOL) held up for awhile and (SOHU) actually made new highs. I was feeling quite confident that I'd acted properly deciding to hold and ride out the correction.

I've had almost everyone aware of my decision question why I tried to hold (SOL) instead of taking profits (I've been up as much as 92%). Some folks feel that any time a stock moves that far you should sell at least half of your position. Others look at the situation more technically, and believe it was a sell because the stock had advanced 100% past it's 50 dma. I've also heard from traders who are not opposed to holding a stock for the long term and riding out a pullback, but felt that this was not the market for that.

When I decided to hold (SOL), I thought about all of these methods. I need rules to sell a stock I'm up in as well as rules to sell a stock I'm down in. The problem for me is, I find the rules for stopping a loss much more simple. I never lose more than 8% on a stock - period.

Selling a stock that's up, on the other hand, presents a variety of factors to consider.

Perhaps first and foremost - is the market in my favor? Even this question cannot be easily answered. It seems like a bear market now - all the news is bad, the economy is horrible, inflation is a problem at the same time growth is slowing... However the market often turns up in the least likely conditions. Once I've experienced several market cycles, I hope I'll develop a 'feel' for a strong bull market - but right now I'm assessing things from a purely academic perspective. Although the market does not look good, and I would not by any means suggest we are in a rally, it has also not rolled over - yet. From what I've learned, it seems we can expect another leg down if this is indeed a bear market.

Secondly, how is the stock's industry group? Has it flashed any kind of climax signals? The Chinese market in general and solar stocks in particular have been under pressure, but again have not suffered any major damage.

Third, what is the technical action of the stock? Has it violated any key technical support levels on high volume? Has it become too extended, indicating it's due for a pullback or correction?

There's more of course, but I've tried to distill the considerations into what I think are always the three main concerns: the market, the industry group, and the stock.

Without rehashing it in detail, when I decided to hold (SOL) I thought the market and the Energy-Other group were reasonably good, and the stock itself had flashed no warning signs. It did appear ready for a pullback, but I saw no reason to suspect it would not be orderly, and the stock appeared to have strong institutional sponsorship to offer support.

There are two strong arguments I've heard against my decision to hold. The first comes from what I'll call the 'active traders' camp. These folks are pretty active - they ride strong breakouts for quick profits, frequently cashing in at 15% or 20% gains and moving onto the next stock. I've also heard this referred to as 'swing trading,' and it can be very successful.

A swing trader would've taken profits in (SOL) when became extended 100% past the 50 dma - and they would've made nice profits. They know the law of averages says that most stocks this extended will correct, by cashing in they remove the risk of riding out the correction, and can often take a position in the stock again at a lower price in the pullback. By taking profits though, they can avoid the stock if the pullback looks unhealthy or market conditions change.

This is a pretty difficult strategy to find fault with. I suspect that swing traders suffer more losses on failed entry points simply because they are more active, but I have no facts to support my suspicion.

The second argument I've heard does not find fault with holding a stock with great potential through a pullback or correction, but stresses that this should only be done in a strong bull market. Again, that's a difficult position to argue with.

Investing is about keeping the odds in my favor. My interpretation of the CAN SLIM selling rules kept me holding (SOL), but I certainly could've interpreted the rules wrong. I've quoted here a number of times the special situation that calls to hold a stock for eight weeks if it advances 20% or more in three weeks. However, I could also quote a number of passages from 'How to Make Money in Stocks' that would've indicated I should sell the stock, based on market factors if no other reason.

I'm glad I've experienced holding a stock through a pullback. I've had to live through a 92% gain becoming a 10% gain. In the future this will help me immensely when I have to decide again whether I want to try to hold a stock through a pullback. I'll know what it feels like, I'll know the emotional turmoil it can cause.

It's easy to be resolute conceptually - but when the money starts going away my emotions begin to play tricks on me. I argued with people when the stock was above the 50 dma that I'd made the right decision and it would work out. When it crashed below the 50 dma I admitted I was wrong and should not have tried to hold the stock. When it seemed to find a bottom today, and I began to see a reason for the drop and the potential for a comeback, I started to think I might've been right after all. I've been through all these emotions and more in just the past two days; anger, frustration, disgrace, hopelessness, resolve, elation, indecision, and more.

Here's the real danger of letting emotions get the best of me. Yesterday, as I watched in disbelief as (SOL) continued to plummet, I broke my own rule and moved my sell stop up on (SOHU). I have a rule not to make sell decisions intraday - exactly for this reason. It's just too emotionally charged. So, I had a stock that was behaving poorly in (SOL), which I held, and a stock that was behaving well that I sold for only a 9% gain in (SOHU). (SOHU) had an average volume pullback to the 10 wma and came off it nicely. This is a strong stock that appears to have fine institutional support, and I wish I had not panicked and sold it.

It defies explanation really. In the moment, all I could feel was shame for being wrong and a need to salvage some profits. So why didn't I sell (SOL) instead? Partially ego and partially because I didn't want to compound my mistakes by selling (SOL) at the worst possible moment. I didn't want to be shaken out, even though it's now trading below the 50 dma. As my coworker said, the 50 dma 'is not a wall' - a stock can trade below it for some time but does eventually need to retake this level. Hard part is knowing how long to give it.

There's a lot more to the (SOL) story, but I've written more than I expected tonight so I'll have to continue with that later.

Hey, I think that's my first cliff-hanger!

-Geoff

Focus

I've always enjoyed online forums. No matter my interest - video games, fishing, investing, or otherwise - I like to connect with people who have similar interests. The internet is fantastic for that - it has made the world a lot smaller.

The forums at investors.com have been a great resource to me since I began working to learn the CAN SLIM method. I've had invaluable help on chart reading, fundamental analysis, entries and exist, and of course market analysis. I think it's greatly accelerated my growth to this point.

There's a downside though, and I have to manage my forum activity carefully.

Two of the great traders I read about - Darvas and Livermore - found it imperative to cut off all outside influences to their trading decisions. They would not bend on this matter - they did not want anyone's thoughts or opinions effecting their decisions.

I've thought long and hard about this, because on the one hand I can learn a lot from other trader's experience(s). On the other hand, above all else trading stocks is a business of managing emotions. Once I've heard someone else's opinion, I can't unhear it and I can't ever know if it effected my behavior (positively or negatively).

Recently I've come under scrutiny on the forums for my decision to hold (SOL) through a steep pullback. I've mentioned here a number of times that I'm not sure it was the right choice, but I evaluated the situation the best I knew how and that's the choice I made.

I wish I could say it doesn't bother me at all when I'm questioned or criticized about my trading (or almost anything else, for that matter), but that would be a lie. Unfortunately, I am far too sensitive about what others think of me. It's really quite silly considering these are strangers I've never met and probably never will, but it can really get to me.

When that begins to happen I have to reconsider the value I get out of a public forum versus the trouble it can cause me if it starts to cloud my judgement. I would rather lose money on a trade of my own free will and stupidity than make money because I was prejudiced by someone else. I think in the long run I'll always come out ahead relying on myself. At least if I fail I'll have only myself to blame.

The same can even go for conversations with friends and family. If I bring up the subject of a gain in a stock - probably searching for praise - invariably they'll question me. Why didn't I sell yet? Why don't I sell now? Isn't the economy bad? I realize very quickly that unless I want to give everyone I know a copy of How to Make Money in Stocks, I might as well just keep my trading business to myself.

For now I've been reminded that it's my money, my responsibility, my decision. I'll take another voluntary leave of abscence from the forums and get my head clear (well, as clear as my head gets). I'll focus on my reading and try to finish up The Battle for Investment Survival (slooooooow reading) so that I can get into The Successful Investor and Trade Your Way to Financial Freedom. Always something new and interesting on the horizon!

Oh, and in case you're wondering, I'm still holding (SOL) and (SOHU). (SOL) is sitting right on the 50 dma, I should know soon if it's going to roll over or get a bounce.

-Geoff

A Couple of Good Trades

Even before the market followed-through on March 20th to begin the most recent rally, my screens began returning a half-dozen or more oil stocks every night. The screens worked well, they spotted the strongest group and I didn't act on it.

As I've mentioned, I listened to all of Bill O'Neil's radio interviews on TFNN. One thing he stressed over and over was that the biggest winners tended to be companies which have IPO'd within the last eight years. Most of the oil companies coming up on my screen were 'stodgy' older companies that had been plodding along for years.

However, like the recent fertilizer boom, I could have recognized that the 'N' in CAN SLIM - the 'New' - was the incredible market forces moving oil prices higher. This was great for the group but another reason I avoided it - I don't understand commodities and try to leave alone stocks that trade off the dollar, inflation, or other similar factors.

I'm not sure I was wrong in this. There are a reasonable number of good opportunities in the market. If I really don't have a 'feel' for a particular sector of the market, I don't see much harm in avoiding it. I've been communicating via email with a reader of my blog who's been very successful using the CAN SLIM system, and he filters out all commodity stocks so they don't even show up in his screens. If he doesn't feel he can understand the business to some extent, he doesn't want to own it. I don't think anyone can argue with this approach - perhaps feeling some level of confidence in a stock is part of the intangibles that go into making one a successful trader.

I'll add that I also thought the oil sector looked extended, and many of the stocks that were breaking out of this group were doing so on poor volume. In a new rally after a large correction, I was looking for new leadership. To see the same old energy group moving up further in low volume looked like a red flag to me.

I did see (CLR) take off and in early April I bought a bit of (SD) as it looked similar. It didn't do much for me and I stopped out even before it took off recently. My experience trying to find the second best stock in a group has not done well recently - I've stopped out on: (PWRD) - the leader is (SOHU); (GU) - the leader is (SOL); and the above-mentioned (SD).

Then on April 16th my Pitbull screen showed a stock that had exploded from a v-shaped cup base on massive volume - (SOL). Technically the cup was flawed - you want to see a rounder cup pattern, not a 'v' shape. However the fundamentals were tremendous as was the volume pouring into the stock on it's move up. It had IPO'd just six months ago, and the growth estimates were good. It was trading around $15 and I calculated a two year price target of $84. As far as the base was concerned, I'd read a number of times in IBD that IPO's don't always form perfect bases. I decided to buy it.

I had missed this stock's breakout and bought a bit higher than the rules call for. The buy point was $14.29 and I bought at $15.25 - almost 7% above the buy point (the limit is 5%). I liked how the stock was acting post-breakout so I took a chance. (SOL) increased over 30% in the next three days, which qualified it as a potential 'big winner' according to 'How to Make Money in Stocks.' This means I should try to hold the stock for at least eight weeks from the breakout.

I had never had a stock act this well. It went on to advance as high as $29 - 92% above my buy point. As I've discussed in prior posts the book is not written on this trade yet - but even if I botch it now I still have the experience of finding this kind of big winner stock. That should benefit me greatly in future trades.

By the time I purchased (SOHU) in late April I had already started this blog and I wrote about it then, so I won't rehash the specifics of that trade now. Suffice it to say that for the first time I owned two winning stocks. I wiffed on (PWRD) and (GU), then decided I didn't want to risk any more losses eating into the gains of my winners. I had learned my lesson on that last year. If I hadn't made another trade after buying (RIMM), I could have finished the year up 10%, instead of down 20%.

I guess that completes my synopsis of what brought me to this point - if you're looking for a sleep aid you'll have to go elsewhere now! This has been a very valuable exercise for me, and at the risk of sounding like I'm bragging it's helped me see the progress I've made over the past year. This is not to say that I'm doing great now, but rather that I think I'm reasonably less moronic.

In the future I'll spend my time here devoted to my thoughts on the market, my portfolio, failed trades (I still need to review (PWRD) and (GU) in depth), and whatever else comes to mind related to trading stocks.

-Geoff

Signs of Progress

My previous discussion of my investing history dealt with the time leading up to and including the November '07 through March '08 correction. I had subscribed to the IBD premium services of Daily Graphs Online and the Custom Screen Wizard. By this time I had some growing confidence in my ability to read charts, and felt it was worth paying $91.50 a month for accurate information to work from. I believed then, and still do, that I will easily recoup this cost if it helps me to improve my investing as I expect it will.

The Custom Screen Wizard can by difficult to use at first. When I tried to put in all the criteria I've read about in 'How to Make Money in Stocks' and see discussed in IBD, it wouldn't return any stocks. This was an important lesson to learn - almost no stock is 'perfect.' If it were that easy, anyone could put this screen together and buy whatever stocks it returned. As I've said before, trading stocks is as much an art as a science.

So, with little experience under my belt, I had to try to weight criteria and decide which to jettison and which to loosen up a bit. I made a strict CAN SLIM screen just in case it returned any hits (so far the only stock it's returned is CLR - well after it made it's big run). I made a few more relaxed screens as well, one that focused on accelerating earnings, one that focused on big earnings growth in the most recent quarter, and one that focused on just the top twenty industry groups.

I also built one screen looser than all the rest, based on the Pitbull system that had introduced me to IBD and CAN SLIM so many years ago (I still have the original Pitbull document I ordered for $50 back then). This screen was targeted mainly at stocks nearing a 52 week high on volume at least 50% higher than average, along with a few basic criteria to return only fundamentally sound companies.

One of the first stocks that came up on several of my screens was (BRKR). This stock had outstanding fundamentals and was a member of the same industry group as (ISRG), a huge winner last year. The group was in the top 40 and I had wanted to stay in the top 20 industry groups, but the fundamentals on (BRKR) and big volume breakout lured me in. I traded the stock several times to a net of zero - I risked a great deal of capital for no return. Looking back on it, the industry group was not necessarily too low, but it was trending downward. (BRKR) ended up lowering guidance due to currency exchange rates and falling apart shortly after I stopped out of it in early April. I had sold half of my position just prior to this, a good move that preserved some gains. I want to remember in the future that it never hurts to take some profits off the table. I'm often hesitant to sell. It's also an excellent reminder that the sell stop is my friend - I stopped out even the remainder of my position, the stock proceeded to quickly drop another 20% or so.

After (BRKR) I resolved myself again to stick with the top groups, and next (MOS) caught my eye. I knew the fertilizer play was extended, but I'd had success with solar and steel last year when they were extended too, and I thought the fertilizer group had at least one more run in it. I thought (MOS) looked the best in the group based on past performance and future earnings estimates. What I was just beginning to play around with was forward PE, and I didn't really apply it when I looked for a fertilizer stock to go with - otherwise I might have chosen to buy (CF) instead of (MOS).

I believe what 'How to Make Money in Stocks' teaches, that I don't want to avoid a stock due to a high PE ratio. However, I think the book understates (or ignores) the value that a forward PE can offer when trying to compare group mates to see which has the best growth prospects. I won't base a buy decision entirely on forward PE, but I do include it in my evaluation.

I had as much as an 18% gain on (MOS) and let it come back, selling for just a 2% gain. Honestly, I just wasn't paying attention to it well enough. It got up and I felt pretty good about it, when it came back I remained a bit too calm on it, until finally it stopped out just above my buy point. This was another good lesson for me. Since I believed this group was extended, I should have placed a stop loss to lock in a 15% gain once I had it. This was not the kind of trade to relax and let ride for the long run.

It was an expensive lesson, but I had reason to be optimistic. Throughout the previous year, my mistakes cost me capital. In 2008, my mistakes were costing me unrealized gains. I felt this was a big step, and my confidence began to grow.

Boy, did I miss the oil trade though.

-Geoff