Trader Andy - CFD Diary

My long-awaited reappearance

2006-10-10T05:56:00.000-07:00

In a flash, nearly five months have come and gone since I reluctantly threw in the towel on my trading experiment. Although my "towel" was drenched with the sweat of failure and despair on that day in May, I was nonetheless glad to have put myself through a hardening experience at this point in my career and life. And I can't deny it was an exhilirating ride while it lasted.

Scanning through my old posts makes me cringe at the time, devotion and bravado I put into the exercise. Still, looking at the market's hiccups since then and the frustrating stagnation of my last remaining shareholding, BHP, I can proudly say my decision to go on hiatus was a wise one. In my absence thousands of people lost money (not just Telstra investors) including a friend who is searching for his first pot of gold. Unbeknownst to me he had whacked $20000 on tiny telco Engin (ENG) and another anonymous small-cap. Only recently did I peruse through some charts and came to the realisation he was turning a house deposit into a piggy bank full of coins. The crazy bugger isn't fussed though, which I admit is a good lesson to us all on positive thinking and self-affirmation. I wonder how many other early-twenties guys are like us?!

My dad has seen his Telstra retrenchment payout dwindle to less than two thirds of its original value after rigidly insisting on placing 100% into an online savings account. Refusing to look for another stable full-time job doesn't help but the sharemarket's poor performance has given him the last laugh. The managed fund (Perpetual) I recommended at the time fell by roughly 20% in the last three months.

At the other end of the scale, my more conservative friend joined the resources party by splashing a whopping $300 on a junior uranium explorer. He's earnt about $25 so far - yet another example of the tortoise outpacing the hare!

Anyway, after singing off on this blog I shifted my attention to the new business venture being started up by a friend and I. If you think day-trading is hard, try your hand at being a company director! And I'm not talking about some cushy role in a multinational organisation where the hardest task of the day is adding up your earnings on a calculator or debating over which Krispy Kreme doughnut is tastier out of blueberry and Powdered Strawberry. No, I'm talking about trying to be a web developer, designer, marketer, receptionist and strategist all in one.

The business (Noodle Networks) has little to do with trading or the sharemarket, which is why I lost touch with basically all financial news. We will be offering consulting services to small Victorian businesses with a primary focus on providing SMS capability. There is quite a market for this at the moment, and having an IT consulting background it is not overly difficult to achieve. With an SMS "invitations" (Noodle Invitations) site for the general public about to be launched in conjuction with the consulting business, you can see why I've fallen off the radar for quite some time!

So what brings me back? I recently received my dividend in the mail from BHP - a measly $33! Does anybody feel embarrassed when presenting the teller with a cheque of less than $50 ? After that I opened up my old trading software and looked back at all the old resistance lines I had drawn all over the charts. Taking a long term view there are some charts in there that are showing some quite enticing patterns. The biggest disappointment was seeing what has become of the Rinker (RIN) price. I earmarked it as a strong short when it hit a peak, but didn't have the cojones to stick with it.

So although I'm back now and happy to watch the odd chart and dabble with a trade or two, I probably won't have the time to post regularly. For now I need to put on my marketing hat and start doing the hard yards....find new clients!

Mercatorius Expletio - Stopped out

2006-05-22T01:25:00.000-07:00

Day 31,32,33 - The week of the crash
Total Account Value: $3540
Available Equity: $3292
Positions Remaining Open: 2

I've never been one for game shows. Not only do they offer some of the driest television moments you will ever behold, they also incubate simpleton culture in their simpleton viewers' minds. And would any expert disagree that the illusion of free money and prizes is unhealthy?

I just finished watching an episode of "Deal Or No Deal" that made me feel sick to the stomach. A friendly looking yet doltish mother of six was vying for a 1/26 chance of taking home $200,000. Half way through, the cards were falling nicely and the "bank" was offering a generous $40,000 guaranteed if she decided to walk away. But no...it seems there was a reason behind her daredevil confidence.

"We own a holiday house in Point Lonsdale (affluent Victorian beachside community) that has passed down through two generations," she said in so many words. "At some stage it was mortgaged and now we need to find $400,000 to keep it." God knows what the funds were needed for, but if I was the ancestor who built the house with my own sweat and blood I would be turning in my grave. The charismatic host oohed and aahed and gave her a "shoulder to lean on" but I bet he was thinking the same thing I was - another Cashed Up Bogan (CUB) that the popular media has been talking about recently. Think David and Victoria Beckham, Russell Crowe, Shane Warne and on the not so famous side, jacuzzi-buying goldminers. This former CUB had gone bust though, and she was (quite literally) risking the house on a pure, televised gamble. Reverse Darwinism taking over - survival of the dumbest.

I'll spare you the torture but she left the studio $5 richer. A booby prize for the boob who fancies faith over reason. It was a very timely reminder that most people in the world have little practical intelligence when it comes to risk mitigation and money management. Alarmingly though, consumers like these actually keep the economy ticking over. Watching the public humiliation of the CUB left me vindicated in my decision to stop myself out of trading altogether.

Yes, I've been away for a few days, not because I've been brooding over my losses but because I've been lacking the right words for this diary entry. Wednesday of last week was average but unspectacular as my account balance fell slightly yet again. However I erred fatally in placing complete trust in my charts - the individual daily, weekly and monthly charts of different (non-resources) stocks. Unfortunately, more longer-term buy opportunities were noticed. So through the carnage that occured on Thursday not even my loose stop losses and minor position sizes could save me from a sad demise.

My running account balance collapsed through my maximum loss limit of $4000 to $3400 before making back $100 due to the survivors (HSP and ABC). Gaps appeared on just about every chart no matter what the circumstances, and most rose slightly after that. If anyone made a killing on Thursday they must have combined fiendishly good future with a disregard for the "rules". (Shorting most big resource stocks would have been risky). My biggest annoyance was that in the most recent two weeks I had earmarked many stocks as strongly bearish but shorted them unsuccessfully. Now they have responded - ILU, AXA, MBL (ouch), BIL, RIN, WPL (ouch), ASX - you've seen me talk about them all. The obvious lesson here is to keep stop losses loose but is that safe in an underlying bull market?

So that's the way it is. And even though I wince to admit that my experiment ended in monetary loss I'm not ashamed to say that I failed. Give or take, I have learned more in the last two months than I could have learnt in two years of reading. A good friend reminded me on the weekend that if I started this last year I would be rich. While hearing this buoys my spirits I will not place all the blame squarely on the market. Shit happens and you must expect the unexpected. Still, the market has been wacky lately and is no environment for a beginner.

When the kinks are ironed out and everyone re-mounts the bull I will resume (only on a lesser, less active scale). However, while the followers who follow fables of guaranteed riches will erase from their memories all events further than one week past, I will remember how it felt to crash land. I'll remember how it felt to admit to others that I wasn't good enough, and that I had no choice but to succumb without an opportunity to resurrect the situation. But most of all I'll remember how good it felt to brush away the dust and keep walking, only slightly bruised but nowhere near broken.

So bad, it's embarrassing

2006-05-16T04:59:00.000-07:00

Day 30 - Tuesday
Total Account Value: $4315
Available Equity: $3345
Positions Opened: 3
Positions Closed: 5

Ouch, that really hurt. Don't laugh at me people...

The market fell again for the third consecutive day and although some of my positions were holding up, big collapses in NCM and ARQ are largely responsible for that horrible looking account balance. Newcrest Mining, which broke out from a triangle pattern on the 8th of May, had been performing quite well despite all the chaos surrounding it. Yesterday it closed a small downward gap and despite my nervousness on resources stocks, I had picked this based on long-term charts was confident it would see it through. As such my stop loss remained very loose to allow for volatility. Today it plunged 6.4% right through the 20-day SMA and the few days of handy gains turned into maximum loss.

Arc Energy was a similar story - after 3 trades on this stock I have lost a total of $276. The price really doesn't seem to pay much attention to support and resistance. Iluka Resources (ILU), which I had shorted, bucked the trend and began to rise through my stop loss. Once again winners turning into losers. Luckily PMN held out and RIN exhibited further weakness.

The paradox I faced today was watching strong movements happen everywhere but being unable to find many safe entry points. The problem with transitioning from a short-term trading style to an "enter and hold" one is it must be built up slowly. Many stocks have been hovering around long-term support and resistance and are indecisive about when the move will be made. BSL, CSR, ABC, IAG, AWC - the list goes on and on. I really shouldn't be going long until the bearishness has passed and it would be foolish to go short when they seem to be closing in on a reversal. It seems the only lucrative shorting options at the moment are BHP, RIO, OXR, ZFX, FMG etc. but that is way too speculative for me. Without patience I will only continue to bleed.

The promising fact is that I have noted down a list of stocks that appear close to reversals when I couldn't find any at yesterday's close. Something's gotta give.

The red sea

2006-05-15T06:40:00.000-07:00

Day 29 - Monday
Total Account Value: $4806
Available Equity: $3107
Positions Opened: 2
Positions Closed: 4

Wow! What a sight to behold today. It was the biggest single-day fall since last October as resources stocks took a king hit. My decision to avoid some of the larger players in the industry was vindicated. I wonder how all the "Johnnie-come-latelies" with undiversified portfolios felt when they left the office for morning tea today. Only the coolest, most experienced minds would have been able to shake off chaotic events such as Zinifex's (ZFX) 8% collapse. I had been raving about this stock just one week ago - I guess it just goes to show how controlled by external events much of the Australian stock market is.

Just about everything fell today with the exception of Leighton Holdings (LEI), which notified the public of an expected 20% proft increase. Not even DCA Health (DVC) could recover from a monumental drop of 19% yesterday. This serves as a valuable reminder not to enter a position simply due to a large fall or gain. You should actually wait for it to start returning to normality. Also, DVC proves that trading solely on "market sensitive" news is folly. On May 11th, a press release announced "DCA Plans Further Aged Care Growth." Second only to resources stocks, the media's other pet subject is the positive outlook for the health industry due to the ageing population. Looks like the market was having none of it.

As for me, I was unable to part the red sea, but my losses were generally contained. BNB was stopped out after a massive opening drop. Keeping looser stop losses has its benefits but on a day like today you end up losing much more than is necessary. This is one stock to keep an eye on however. Promina struggled early and just pipped my stop loss before rising back up a few cents. The annoying aspect was that this price was quite a bit below significant long-term support. Sometimes the pressure is just too great. On a day like today, the stocks that finish strongly (while still down) are the cream of the crop. PMN rallied and the buyers arose from the ruins to re-establish old support. I re-entered at $5.79.

It was my shorts in RIN and BIL that saved my bacon however. ILU also continues to fall and my target of $7 is looking more and more achievable.

Now what's the bet RIO and BHP rise by more than $1 tomorrow?

Week 6 Summary

2006-05-14T06:32:00.000-07:00

Profit/Loss to Date (closed positions) - $1548 loss

This week
Positions closed - 17; Positions currently open - 8
Winners - 7; Losers - 10; Win/loss ratio - 41%
Biggest Loss - $177; Biggest win - $423

In what was a very stressful week my trading success and confidence levels fluctuated wildly. I also came to the realisation that my current system (or lack thereof) is not the most efficient way to make money. The shorter the time frame the more effort is required to ensure that wins don't turn into losses. More discipline is required to keep from overtrading, which although it allows me to spread my risk it encourages poor decision-making (which includes closing positions too early due to paranoia or to free up equity - both extremely bad habits). Also, I'm sure that many hardcore traders out there would disagree, but a touch of luck is a great help when opening gaps and market indecisiveness are involved. If no luck was involved, foolproof get-rich-quick systems would have been developed long ago.

It's heartening to see that although the number of positions closed has halved compared to Week 5, the win-loss ratio is beginning to look respectable. Six weeks sure does feel like a LONG time in the trading world.

If a tree falls in the forest...

2006-05-12T04:55:00.000-07:00

Day 28 - Friday
Total Account Value: $5187
Available Equity: $2791
Positions Opened: 2
Positions Closed: 0

I didn't even log on to my trading platform until 11am today. That's how confident I am that my "big picture" strategy will work in the long run. There's no need to panic when daily losses occur - it's much worse when trades are taken with the daily flow and not closed out before the day's end. Today the market opened down and stayed down, but my stocks were holding up quite decently. Following a gain of $600, a loss of less than $100 is not bad at all.

Stop losses are one aspect I feel I've improved on. Both BNB and PDN would surely have been stopped out if I stuck to my original pattern of trailing a tight sell order after a day of large gains. I kept reminding myself of Timbercorp (TIM) - the fish that got away last week. Despite technicals indicating strong bullishness I grew paranoid as it followed a successful day with mediocrity. I was happy to exit the position with a gain (such was the overwhelming quantity of losses I'd suffered) at $3.43. The stock now sits at $3.79, which would have boosted my profit to an amazing $621! Trees were falling in the forest and I didn't hear.

I shouldn't be dwelling on mistakes but occurences like this are handy to reflect upon when faced with similar circumstances. Cut your losses early and let your winners run. It's been said many a time before and I'll say it again.

Iluka Resources (ILU) continued to fall with conviction so I pyramidded what was a tiny position to boost the holding to around $7500. In no way does this break the bank but you may have noticed that my conservative half is starting to win the battle over my inner brash adventurousness. The charts point toward heavy support at $7.00 even so I will monitor this closely over the next few trading days.

Bank of Queensland (BOQ) appeared ready to bounce off support at $15.00 but I wanted to wait and see what would happen throughout the day. It fell through to $14.85 but the order book looks very thin so I let the opportunity slip by. It will be interesting to see whether the $15 mark has now become solid resistance or not. The other interesting two are Arc Energy (ARQ) and Bluescope Steel (BSL) which both appear to be hovering around major support and resistance zones. Soon uncertainty will give way to confident movement and I will be ready to pounce. This method is much better than pre-empting the market - I may feel like a hero if the cards fall my way, but if they don't I'm no more than an idiot.

Pendulum of fortunes

2006-05-11T02:54:00.000-07:00

Day 27 - Thursday
Total Account Value: $5263
Available Equity: $3377
Positions Opened: 2
Positions Closed: 3

Well there ya go! For the fourth day in a row my account balance has changed by more than $600 a day. Does this mean I'm an inconsistent trader or is it just an example of sharemarket volatility?

There is little to report today as I didn't actively trade as much as I have in the past. Most of the past couple of days has been dedicated to scanning monthly and weekly charts, paying particular attention to moving averages and plain old lines of resistance and support. If a stock's chart displayed scrappy looking, inconsistent movement I removed it from my watchlist. One of these was what had become my trading nemesis - Lend Lease Corp. (LLC). I think this stock a nightmare for both traders and investors.

Some charts showed really nice looking trends and pullbacks, and some of these were very close to the current price of the stock. In a spreadsheet I have written notes beside all my stocks documenting the overall trend (bullish if above 40 day EMA, bearish if below) and short term trend (possible temporary reversal toward support/resistance). The actual values of major support and resistance prices have also been recorded. I plan to take longer term positions when bullish stocks recover from short term reversals and take shorter term positions on trending stocks that change position against the prevailing trend. As such I will avoid some resources stocks such as BHP and Oxiana. Even though these may be profitable, recent gains have gone exponential. With such uncertainty currently surrounding the market I would prefer to wait out these on the sidelines.

Newcrest Mining (NCM) and Promina (PMN) are two stocks that are resuming bullishness. Check out the weekly chart of PMN on a 2-3 year time frame and you'll see why I was keen to go long. It has just broken major resistance and the market depth chart agrees - a strong looking barrier has built up around the $5.80 mark. BNB continues to accelerate and I will stay long with a "loosish" stop (than usual for me) until it adds roughly another dollar.

I barely looked at the daily charts while trading was in progress, but there were some tempting entry signs which I refused to take. If I'm disciplined about trading from the forest (rather than the trees), my crippled trading account will surely recover.

Not happy, Jan

2006-05-09T04:15:00.000-07:00

Day 26 - Wednesday
Total Account Value: $4569
Available Equity: $2402
Positions Opened: 6
Positions Closed: 7

Note: I accidentally overwrote Tuesday's entry with Wednesday's and have no backup. Being hopeful here but does anyone know about retrieving a backup copy?

Oh dear, what has happened? In what other realm can things turn pear-shaped so quickly? Somehow I've managed to keep the losses in perspective and not let them eat away at my psyche. This morning on the second day of the medical test I was engaged in deep conversation with a young lady for a few hours, unaware of the impending doom that was about to befall me.

It wasn't until she mentioned saving scrupulously for three years for a trip to Europe that it twigged. A self-confessed spendthrift, she told me that I can save easily too if I want to, and that all it takes to form a disciplined habit is 21 days. I didn't mention the sharetrading, but after 26 days the payoff has not yet come. The thought of this makes me feel a bit wasteful, even though money means very little to me. It's not that I think money grows on trees, but I don't believe that accumulating wealth at all costs is the key to happiness.

I came from a modest upbringing - I never had a lot of possessions so have learnt to live without them. It embarrasses me to say it, but at the conclusion of 2004 I had merely $50 to my name. Studies were tough and having never had a casual job (don't ask why) expenses took their toll. After working and saving I now have a comfortable stash of funds, which is why I took on this challenge. Based on my history neither greed or fear is driving me, just the desire to succeed. Surely this could not be my downfall in such a cutthroat "industry"?

Anyway, I like getting out there and talking to people, so until my conversation partner told me she had a dream about colonic irrigation, it was pleasant to be away from the PC. Back at home I almost expected the disaster that had happened. Fours stop loss orders were filled near 10am after yet more gaps appeared and sentiment for individual stocks turned full circle. I entered some positions based on my favourite, successful breakaway patterns - BNB is set to continue rising, NCM is showing bullishness and DOW finally broke out of its triangle pattern (I watched the thing for days when it finally happened I missed most of the action...).

When I first began researching trading and technical analysis the most common message was "beware of false signals, use suitable time frames on indicators to prevent whipsaws etc. etc." I quickly learnt that some indicators were largely useless because "signals" would appear on them much too regularly. For instance does anybody pay attention to Williams R% and the crossing of the slow and fast lines on a Stochastic?

The point I'm trying to make is that my daily charts for major Australian stocks are whipsawing just as badly. Signals say one thing, the depth screen says another, and then the price does its own thing. Yesterday I backtested a few signals to prove this unreliability. Moving averages are rarely respected. Check out a chart like Woolworths (WOW) or Ansell (ANN). Do you think you could have made consistent profit from these (without the gift of hindsight)? I've been looking at a few US stocks and their patterns appear so much smoother and sexier - does anybody else notice this?

Which brings me onto the "lamb to the slaughter" nature of the All Ordinaries. Just as in foreign affairs, Australia is America's and England's bitch. Our market is largely dictated by overseas markets and base metal prices. All I can say is thank god for the resources boom. All of this means trading on a day-to-day basis is low percantage and involves some luck, pure and simple.

I have therefore decided to go back to monthly charts on a four year time frame, complimented with weekly charts. Now these charts actually reflect the individual company rather than market swings. Support and resistance are significant and the 20 and 40 Exponential Moving Averages are reliable. Take a look at ILU, CEY and MAP and you'll see what I mean. This new strategy will involve looser stops, pyramidding, and holding for positions (and taking profits) for medium-term.

Onward.

Minimum effort for maximum profit

2006-05-08T02:00:00.000-07:00

Day 24 - Monday
Total Account Value: $5988
Available Equity: $3492
Positions Opened: 3
Positions Closed: 2

I'm relieved to say that not much went wrong today! In my most prosperous Monday so far, all open positions grew steadily throughout the day with the exception of my only remaining short, RIN, which I had believed to be strongly bearish. There was little need to overtrade as my "portfolio" was setup last Friday. I had entered a few longs then that were indifferent, leading me to spew out negativity in my last daily posting. Off days or "boring" days followed by positive days seems to be the common pattern in my trading. I've realised that there's more harm than good in trying to make every day a winner (by going for risky "quick win" trades).

My new data based on weekly charts helped immensely. Since the market opened well up, I filtered my list to display only moderate and strong bullish stocks, of which there were 11 (out of 45). Two of the four strong bullish stocks I had identified (JBM and BNB) were already in long positions and surged ahead strongly. The other two were Australand Holdings (ALZ), which is slower moving low-price stock and ZFX, which benefitted me so much last week. I set a price alert for ALZ at one tick above a recent high, and went long on ZFX as it gapped open with strong buyer support.

I did not even look at the rising stocks I had tagged bearish. This would be a complete waste a time. Perhaps late in the day shorting opportunities would arise but for now going against the trend would be flirting with disaster. This kind of discipline prevented me from staring at charts/order books for too long and overtrading.

Two other longs were set (MAP and AWC, which gapped up and overcame the 20-day SMA) and that was my trading done for the day. Just set and forget. I actually had no choice as I had an appointment to attend a medical test for fructose intolerance. This involved sitting in a room with a bunch of old ladies taking a breath test every 15 minutes. I was the last to leave after 4pm, so I was hoping that not too many entry or exit signals had gone begging.

It was a pleasant surprise to see a daily profit of nearly $800. BNB was the big winner with a lovely 3.9% daily gain. However when is anything ever completely perfect? The downside is that having no open short positions leaves me vulnerable and some of the big gainers look ready for a gap down or stagnation. All I can do is wait.

Also found a great, comprehensive article about common trading mistakes that is a must read for all new traders: http://www.decisionpoint.com/TAcourse/TradeMistakes.html

Week 5 Summary

2006-05-07T16:47:00.000-07:00

Profit/Loss to Date (closed positions) - $1573 loss

This week
Positions closed - 32; Positions currently open - 7
Winners - 9; Losers - 22; Win/loss ratio - 29%
Biggest Loss - $129; Biggest win - $467

The figures are not looking too flash this week. I tend to hold on to my winning positions for longer than the losers, and reducing my maximum loss limit has allowed me to do this with more confidence. The one positive is that while my ratio of success is quite poor, winning positions have consistently added more to my balance than losers have deducted. My experiment with a greater volume of trades has allowed my overall balance to look healthier than my losing streak a couple of weeks ago. Now the challenge is to turn more of them into winners, and prevent the winners turning into losers.

I have scanned in detail all weekly charts on my watchlist using a variety of measures - price movements, support and resistance, volume, stochastics, MACD, On Balance Volume and money flow. Each stock was then classified with its trend and the strength of that trend - either weak, moderate or strong. I will rely on this list in the coming week.

Treading water

2006-05-07T03:45:00.000-07:00

Day 23 - Friday
Total Account Value: $5253
Available Equity: $2866
Positions Opened: 5
Positions Closed: 7

Friday's update is a bit late because I've had a very busy last few days. Hopefully this has helped to clear my head a little. The daily commitment I've been putting into trading is beginning to grow a little dry - simply setting price alerts at predetermined possible entry points has not been enough. Prices are so volatile that I find myself watching the price depth screen for much longer than I should be.

Today I made a few mistakes, so instead of waiting it out I closed the positions out prematurely before more damage could be done. This is still costing me brokerage though which is a particular sore point. I feel like I'm stuck in no mans land between two strategies - day trading and end-of-day trading (holding positions for a few days) - and this is causing me to overtrade and make mistakes. Most of the stocks on my watchlist show daily charts that are all over the place, with the exception of MIG which has not had a positive day for nearly a month. So despite making a decent number of smart trades I have allowed too much rubbish to slip through the gaps. When the market is uncertain, I'm uncertain!

Rinker (RIN) remains a positive in my current portfolio, continuing to steadily fall after reaching an all-time high about 10 days ago. Babcock and Brown (BNB) is beginning to show the bullishness which has been brewing in the charts recently, so I've added to the position to make the most of it. Breakouts such as this (following 'boring' price action) have been far and away my best moneyearner so far. Jubilee Mines (JBM) is another that seemed set for a recovery on Thursday - the gap open this morning allowed me to trail my stop loss to lock in profits. The weekly chart (which I will analyse thoroughly for all "watchlisted" stocks before Monday) for JBM looks very promising so I'm keen to hold for the time being.

Up close and personal with the "mum and dad" investor

2006-05-03T19:11:00.000-07:00

Day 22 - Thursday
Total Account Value: $5405
Available Equity: $2286
Positions Opened: 7
Positions Closed: 8

This morning the All Ordinaries finally responded to yesterday's news of an interest rate rise, shedding more than 60 points in 10 minutes. Much of this can be attributed to the "mum and dad" or amateur investor, who wield great influence on opening prices. Allow me to give you a glimpse into their Wednesday evenings.

In a leafy suburban street, John Smith pulls his oversized Ford Falcon into the driveway, right behind his wife Jan's 4WD. She insisted they buy the latest safety-enhanced model when the twins were born. The spare car sits idle in the garage, right beside the matching bicycles which have lost their original sheen - now covered in cobwebs and dust.

Dad: "Hi honey I'm home! Sorry I'm late for dinner, the traffic was almost as horrendous as this morning."
Mum: "That's alright honey, you weren't late for work again this morning were you?"
Dad: "...well the boss wasn't too happy. He wants me to work this weekend s..."
Mum: "You were supposed to take the twins to the zoo! You're missing out on..."
Dad: "Enough! It's not my fault that the three multi-level carparks closest to work were full by the time I arrived in the CBD!"
Mum: "Remember when I said you should have taken that job closer to home?"
Dad: "We've discussed this before...I've already put up with Gary from work rubbing it in my face all day because he caught the train!"
Mum: "Alright sorry darling. Did you hear the news today?"
Dad: "The miner rescue? Yeah that was a heartwarming story in the end."
Mum: "No the interest rate hike. Today Tonight says it will cost the average household another $50 a day!"
Dad: "Well it wouldn't be so bad if you stopped spending my money on clothing and shoes. Have you seen the latest credit card bill?"
Mum: "And you can talk? What about the home entertainment system you bought on store credit from Harvery Norman!?"
Dad: "Ssshhh! Lower your voice, the neighbours will hear."
Mum: "And do you realise how much it costs now to fill up the Pajero? We need to save for Timmy and Jimmy's education."
Dad: "Calm down, I'm working hard from 9 to 5. What more can I do?"
Mum: "Sell those shares you've been talking about lately"
Dad: "But they've gone up 10% and Simon at work said they're undervalued..."
Mum: "Remember what happened with our Telstra shares? It's gambling!"
Dad: "It's not g..."
Mum: "Sell them now John!"

After McLeod's Daughters, as John regrettably logged on to his trading platform and did as he was told, an ad for a dating site piqued his curiosity on the MSN homepage. Many thousands of similar conversations took place across Australia as online brokers gleefully filled their pockets with excess brokerage fees.

Meanwhile, an overweight single man had just returned home from a doctor's appointment regarding his high blood pressure. With a small but handy share portfolio, he fancies himself as an investor. Despite losing money in the tech wreck, he made some of it back on Lihir Gold thanks to a tip from a high school buddy. As he settled in front of the TV with a big bowl of cheesy lasagne, his ears pricked up as the finance reporter told of a rate rise.

"Oh no, that's not good at all! Australian businesses will struggle and there will be a market correction? What will happen to my stocks? Coles Myer, Woolworths and most of the banks have fallen today? This is bad, bad news.... *wheeze* ...the bubble has burst again! Sell, sell, sell!"

Completely ignoring the long term impact of the news and the failing to understand the extent and potential of Australia's resources boom, our friend is driven by fear and panic, selling off most of his portfolio before digesting his lasagne.

The third character in the story is the shrewd trader. Picturing the scenarios above at quarter to 4 he pre-empts the market, going short on some of Australia's heavily traded blue chip stocks, particularly BHP, RIO, WPL and TLS.

But I wasn't any of those characters. I was the "she'll be right" kind of trader. I knew that the market would open down but I wasn't wise nor bold enough to close profitable positions or open shorts purely on speculation. I do possibly rely on technicals a bit too much, but that's my strategy. Sometimes it works, other times it doesn't. I knew BHP and WPL would fall but they are medium term trades, so I thought my stop losses were loose enough. Obviously they weren't! Two losses now on BHP is becoming a joke.

I had tightened up stops on winners OXR and ZFX, but they really should have been closed when my profits were the highest. My total gain from Zinifex was $472, which is still impressive.

My shorts did well throughout the day including CPU, RIN and AXA as well as Lion Selection Group (LSG). However this was thinly traded today so I shfited the stop loss as close as my broker will allow.

Some stocks at the end of downtrends showed buying potential such as Amcor (AMC) which has only gone down since positive news was released about the business. Today's price surpassed two candlestick hammers that had decreased in volume, and closed the gap which opened on Tuesday morning. Babcock and Brown (BNB) has formed a very nice looking pennant pattern over a long time period. The direction was positive before this formed and I saw appealing signals for a bullish breakout. The money flow indicator has signalled a flood of recent trader confidence, and a gap open today on decent volume (despite downward pressure) convinced me to go long. I'm currently $100 ahead.

$5405 is overall not a bad result on a day like today. Too bad it didn't stay at $5550 like it was at 3:55pm! How did my readers cope with today's action?

Have you had your zinc today?

2006-05-02T23:11:00.000-07:00

Day 21 - Wednesday
Total Account Value: $5803
Available Equity: $3092
Positions Opened: 6
Positions Closed: 6

Today was surely the exact polar opposite of yesterday.

Yesterday I woke up afresh at home feeling that my cold had passed. This morning I woke up far away from my trading desk at my girlfriend's house with a croaky throat.
Yesterday I had time to check the news and look over my open positions before 10am. This morning we were stuck in hellish traffic (1.5 hours to get from one side of the city to the other, which usually takes 45 minutes), while the newsman spoke of the Reserve Bank's interest rate hike. A nervous drive ensued. To be honest I was expecting my mobile to ring with a margin call.
Yesterday I had a long position on oil which turned in a nice profit overnight. This morning my second attempt met with failure. Only just though! My stop loss was set just a few ticks too high and my "should-have" $300 win was actually a $100 loss.
Yesterday most of my positions stagnated, sending my balance sharply downward into the close. Today every position played their part, forcing my balance upward in a late charge.

And all this happened despite losing MAP and ILU on the open and having to close the non-performing ARQ and IAG, which seems to have met an inpenetrable fortress of resistance at $5.70. However market depth has just changed at 4:30pm and it looks like buyers are regrouping for one last assault. I'm not worried that I exited a touch too soon. That's trading - you need to make decisions and stick by them.

Even though my short position on Rinker Group (RIN) was stopped out midway through the day, there was a clear opportunity to re-enter. This is the first time I've done this and it ended up in success (apart from the $20 extra brokerage). Just a warning to be careful when trailing stop loss orders, because I had placed one a little too close.

OXR, BHP and WPL all made some decent but unspectacular movements as did AXA, which I have shorted again (originally on April 20th) as it continues to make weaker and weaker "comebacks" since early March. There is now a triple divergence between price and MACD so we'll see what happens.

Fortescue Metals (FMG) met with resistance after solid gains in the past few days despite the mini-correction so I went short as it fell below the previous day's low (which was a spinning top on a volume spike). It fell heavily but since the stock was so thinly traded I exited $160 better off. Wouldn't want to push your luck shorting resources stocks in this kind of environment!

But my star pupil of the day was none other than zinc producer Zinifex (ZFX), which is up by $600 at this point in time. Used as a supplement, zinc speeds up the healing process after an injury. It's surely done that for me in the past two days!

Yay for happy mornings!

2006-05-02T19:55:00.000-07:00

Day 20 - Tuesday
Total Account Value: $5193
Available Equity: $2660
Positions Opened: 7
Positions Closed: 4

Mornings have become a time of fear and dread for me. If you've been reading the blog, you'd know opening gaps are my arch nemesis of trading! This morning the tables were turned. I was greeted with an opening balance $150 greater than when I left yesterday. My long on the oil price made some nice predictable gains and I closed out (temporarily) about US$200 ahead. Commodities are risky for me because I can't monitor them overnight, but hey at least they can't gap!

The All Ordinaries fell considerably then rose again throughout the morning but somehow all this volatility didn't impact me negatively. At one point I had added roughly $500 for the day. This was due largely to the performance of Zinifex (ZFX) which arose from the resources correction with plenty of spark. I have been very wary about gapping of resources stocks like BHP, OXR, WPL, ZFX, RIO, JBM etc. Therefore I will set a stop losses fairly loose and hence take on a small position size. The initial ZFX position was a measily $3500 (on margin that is). I pyrammided after seeing that its strength would continue - by days end I was quite pleased. It showed the I can maintain strict money management practices and still profit.

But that's where my pleasure ended! The tide turned just after lunch as my losing positions grew worse and my winning positions stagnated. Woodside Petroleum (the second of my medium term CFD trades along with BHP ) did little after starting well, ARQ began to slide heavily and PMN could fall no more after tantalising me with temporary profit. Just glancing at the price action on the Promina chart since the 13th of May would fill anyone with frustration. The number of false breakouts and craziness on there makes me wonder why I don't relegate it to the "get stuffed" basket. Santos is another that was (and still is) behaving like this - I haven't traded it since April 6th.

I had long positions in Downer EDI (DOW) and Brambles (BIL) but it seemed they were shackled down. The charts told me to buy, the market depth screen told me to buy. But in the end I sold out with paperthin losses as the overall downward force of the market took charge.

Still positive signs for tomorrow though. Zinifex is shining, Woodside and BHP will only continue to recover and modestly sized positions were opened in Macquarie Airports (after seemingly completing a downslide) and Oxiana (finally I get a chance to see where one of the ASX200 most exciting prospects will take me).

Monday will always be there...

2006-05-01T01:15:00.000-07:00

Day 19 - Monday
Total Account Value: $5136
Available Equity: $2734
Positions Opened: 6
Positions Closed: 5

...to ruin your weekend!

That's right. You wake up feeling refreshed and happy after a good night's sleep and then BANG! $800 down the toilet in just 10 minutes. It was difficult to fathom the extent of devastation as so much was happening at once. But it didn't take long to realise that short positions in CPU, PDN and CML had dropped off the radar. Luckily my frugal money management allowed me to escape without overall loss, but it seemed the mediocrity of Friday's trading flowed on to today.

I'm sure many regular sharetraders were delighted this morning. Don't get me wrong I had longs too, but they were flatlining almost as badly as my shorts! So much for diversification! MBL seemed OK at first but ended up uncharacteristically taking a single day dive from $71.95 to $70.38, taking my stop loss along the way. It really didn't perform very well after the teacup pattern so who knows, today's profit taking might just have dried up all the bearish sentiment.

Two other shorts in PMN and RIN were also pushing dangerously close to their stop losses but I held on - it seemed they had run out of buyers. Also I knew that the market would make its move in the first 10 minutes and keep steady thereafter. Here was the familiar problem that I've faced many times so far - stocks gap open or down and that largely completes their daily action. I had my eye on Oxiana (OXR) as it has been steaming in the past month. But it gapped way open and showed strong seller support on the market depth screen. Note to self: BUY A GOOD LOOKING RESOURCES STOCK JUST BEFORE THE CLOSE ON A BAD MARKET DAY.

However I did re-enter BHP after the dust settled. Let's see how this will fare over the next few weeks/months. Zinifex (ZFX) and Arc Energy (ARQ) were two others I took the opporunity to enter. ARQ bounced off resistance yesterday and opened above the 50 day SMA this morning. It appeared worth a shot.

In the end, RIN and PMN came through and are majorly responsible for my $300 recovery throughout the day. That and the US Oil price, which I re-entered again after seeing it finally start to look positive again since hitting an all-time high early last week. On the 2 hour chart you can clearly see the price break over a solid downward resistance line, churn a little bit before bouncing back off the the now-support line. From the time I entered it is up 57c.

Week 4 Summary

2006-04-29T21:33:00.000-07:00

Profit/Loss to Date (closed positions) - $925 loss

This week
Positions closed - 19; Positions currently open - 8
Winners - 7; Losers - 11; Win/loss ratio - 39%
Biggest Loss - $201; Biggest win - $700

If my weekly profit/loss were a candlestick it wouldn't look all that encouraging. Things started off with a bang and send my bottom line back into the black. But after two average days where I closed mostly losing positions it has quickly retreated to near last weeks close.

As well as the massive win on Healthscope, I finally closed out my steady profitmaker Suncorp-Metway. Looking at my statistics though, SUN ended up only improving my balance by $387. Brokerage and interest on a large position becomes significant - in this case it was $54. In fact looking over my 62 trades so far, brokerage costs pack quite a punch. Right now it stands at $1241, which would sound ridiculously exorbitant if I wasn't making money.

Still this is quite a lot considering I only started with $6000. My gross profit is actually positive at $79. A couple of days ago it was pushing $700. It's a reminder that my trading hasn't been poorer than average but that I need to think more about the right time to enter trades. Re-entering stopped out trades costs double in terms of brokerage.

I think it's time to take charge...

Freaky Friday

2006-04-28T01:38:00.000-07:00

Day 18 - Friday
Total Account Value: $5642
Available Equity: $3211
Positions Opened: 7
Positions Closed: 8

You know those mornings where the bed feels warm and cosy, the birds are singing softly and nobody screams at you to wake up? But when you do finally pull back the sheets and stand up your head feels like it's filled with cotton wool, and there is no milk for your cereal. Just one of those days...

My cold has grown much worse and while I wish the markets would wait until Monday, I'm thankful for not having to ingest a hellish morning commute. But bad news awaits as I find out my long position on the oil price has been stopped out overnight. My opening balance looked sickly even before 10am had rolled around. And to make it worse I completely forgot about the exchange rate with the USD when setting my stop loss! Silly but not too devastating.

Worse, I also discovered that metal prices crashed - nickel, copper, zinc - so my supposedly longer term CFD in BHP looks a bit tenuous. Sure enough the All Ordinaries came tumbling down at 10am killing off BHP, TIM and ILU. Luckily though two shorts in CPU and CML were turning profitable so what could have been a disaster was averted.

Around 10 days back when this happened I shedded around $500 and remained vulnerable for the following day. The difference is greater diversification. I've realised that when trading CFDs you need to share around your available equity between 6 to 10 stocks. So even though I started off on the back foot, simply opening a few more positions that were earmarked for attention at yesterday's close would set me straight.

Healthscope was bucking the trend and refusing to fall in the morning, eventually stopping me out at a loss. The bastard started to fall again almost straight away - the stop loss just one tick too close! Never mind, I may be able to enter again next week once the indecision has evaporated. Annoyingly QBE did this to me too later in the day. Paladin Resources (PDN) was a big winner for me even though I missed out on half of the action. I had been thinking bearish on this stock for a few days now a fall in metal prices was a perfect reason to enter.

This situation is very difficult though. Many stocks gap significantly down and there is a question mark as to how much more they can fall in a day? I preferred to wait for more solid signals of overall bearishness or potential for recovery. Setting a large number of price alerts was great for making these decisions throughout the day without spending too much time constantly monitoring charts.

Rinker (RIN) is one that seems set for extended weakness as it has risen too high too quickly. Fundamental analysts have been recommending to take profits recently and the chart patterns appear to back them up. I watched as latecomers eager for some Rinker action at a cheaper price tried to force it back up in vain before relinquishing to selling pressure. Dark cloud cover was once again telling so I entered.

One positive to come out of the falls is the opportunity to go long on some resources stocks that corrected slightly. It is highly unlikely that positive sentiment has disappeared for these bucking bulls. I await Monday with anticipation.

It cost $40 to fill up my little hatchback!

2006-04-27T05:31:00.000-07:00

Day 17 - Thursday
Total Account Value: $5910
Available Equity: $3025
Positions Opened: 6
Positions Closed: 2

I have now settled into my trading routine and potentially silly trades that would have been opened last week are now being ignored. Lend Lease Corp (LLC) is one stock that comes to mind. I had chosen this on Day 1 as one of ten on my watchlist, subsequently entering two high-risk trades on only moderate signals. Recently it has been hovering around resistance/support, constantly changing its mind and while showing potential for pure daytrading, to me its rather useless. Unlike before I will not trade this stock until it starts being more decisive.

One that has been decisive is MBL, which appears to have broken away after a teacup formation. With an $82 gain today it hasn't been too amazing but steadiness is fine with me. Those that rise the quickest often fall the hardest. I witnessed this today with ASX, which vindicated my decision to take profits yesterday as it plummeted to just near Wednesday's opening price. I would have kissed goodbye all my profits. Behaviour like this reiterates how valuable volume indicators are. Together with price action, it is the most pure form of technical analysis. It just sucks that my main trading/charting platform doesn't record it!

BHP has chosen today to stagnate after impressive gains over the past few months, and while my stop loss order wasn't filled it dragged down my daily result. ORG was stopped out and I opened shorts in CPU, QBE and CML as many signs pointed toward a loss of trader sentiment. QBE in particular gapped open yesterday with a spike in volume but did little else. This reeks of an exhaustion gap, which will quickly be filled. Today it took the first steps.

I also tried something a little different and went long on the Oil commodity price at $71.99. Sadly for the consumer I think this going to test US$100 per barrel sooner rather than later and there is no shortage of analysts who support this view. It corrected slightly in the last few days giving me an entry opportunity. If prices at the pump are going to surge I might as well extract some benefit out of it!

Today was one of those days where my balance actually fell midway through the day and rallied into the close while the All Ordinaries bobbed up and down. This fills me with great promise for tomorrow.

Winter is here

2006-04-26T00:54:00.000-07:00

Day 16 - Wednesday
Total Account Value: $5989
Available Equity: $4191
Positions Opened: 3
Positions Closed: 5

I went to bed last night with a tickle in my throat and a sniffly nose. So you can imagine how bad I feel today. My head is clouded and the last thing I want to be doing is sit in front of my computer. But while my concentration was on and off, nothing went amiss with my trading account.

In fact, after 16 hectic days I am just a tick under my original account balance, after it hovered just below $6100 most of the day. The market opened well up but I didn't notice many obvious opportunities to enter a new trade. I want to be careful not to overtrade by ensuring that my available equity matches or exceeds the amount used on margin.

It didn't take long until one of my shorts, BSL, hit its stop loss at $7.77 registering my first loss for the week. By days end my two other short positions in AXA and CSM (pyrammided) were no more. With hindsight, upon seeing a green covered watchlist in the morning, taking profits on these would have been wise.

And while AXA showed some trend breaking movement it began move back up toward yesterday's close. I manually exited the trade with a tiny profit. Buyers started to get on board CSM and reminded me that I must be frugal when adding to positions. What would have been a tiny loss turned into a larger than average one ($167).

Suncorp-Metway (SUN) has continued to steadily rise since I went long last Tuesday and the profit is now starting to look valuable. I have kept it open overnight as volume indicators demonstrated strong support. MBL is also doing nicely.

Cabcharge (CAB) made impressive gains yesterday after bottoming out, today gapping up and rising further. However these movements were made on unusually low volume, which tells me they're mostly based on hot air. The stock isn't as liquid as others in my portfolio so I locked away my profits rather than try to gamble on good fortune. Luckily for me it began to struggle toward the close. However, my profit was not much more than my maximum allowed loss of $120. I must remember to look at price targets to determine whether the potential reward outweighs the risk involved. It also seems my maximum loss is too high so I have lowered it to $110. Not much I know, but I'll trial this over the next few days and see whether it helps.

In other trades, I went long on Origin Energy (ORG) and Timebercorp (TIM) as they showed trend reversal signals and opened a small long position on BHP. As an experiment, this will be a longer term trade that I will try to pyramid and take partial profits at continuation/reversal points. My stop losses will be looser. BHP has been the best performing blue chip on the market and it would be silly to miss the opportunity.

Now to get some rest...

A new beginning

2006-04-24T02:16:00.002-07:00

Day 15 - Monday
Total Account Value: $5921
Available Equity: $2886
Positions Opened: 6
Positions Closed: 3

Apart from a minor frustrating episode this morning, the past four days could not have gone smoother. My girlfriend and I went for a relaxing weekend retreat that included a deep tissue massage and a variety of relaxation pools and spa baths. The massage therapist said there were knots all over my upper back. It could have been caused by my four-days-a-week gym regimen but I suspect sitting at a computer all day had something to do with it.

Oh, and I somehow managed to generate more than $1100 over the last two trading days. That's a 23% gain on my account balance. The most pleasing aspect of today's trading was that unlike Friday when I was still staring at a $1000+ loss, much of my winnings have now been safely banked. $842 today all up.

The one bad aspect of the weekend I spoke of happened this morning when my craving for a $5 hot breakfast overwhelmed me. On a detour before heading home I parked on a city street before realising I had only 15c in change for the meter. Inspectors are always crawling around. In the desperate search for change in the glovebox and on the car floor I got frustrated a left the car, forgetting to take my keys out of the ignition. Now no change AND no keys! I ran to a corner bar to ask for change but they were closed - my yanking on the locked door probably made me sound like a desperate drunkard. Not many other stores were around. All I could find was a florist but they were too tightarse to trade me some of their precious change. Luckily a friendly bookseller helped me out.

To cut a long story short, I bought my long awaited breakfast (eggs, bacon, toast) which turned out to be runny and unappetizing. Roadside assistance took one hour to arrive in the Melbourne CBD after I made the call, despite the operator assuring me of a 30 minute ETA. Not to mention the 10 minutes on hold. Sitting idle in the cold, seeing off a couple of parking inspector twits and missing the first hour of trading gave me the shits.

But my account balance had only increased since yesterday! My big winner Healthscope (HSP) was starting to weaken after the slowcoaches forced the price to gap open but do little else. When I closed out, final profit was a handsome $708.

I then set about consolidating on CSM by adding to the short position when the price started to gather downward momentum and the sellers were in numbers. I'm liking this stock so far because of all the others I've been monitoring (with the exception of MAP and MIG), it appears very predictable and retains its direction throughout the day.

I took profits on COA as it looks prone to sharp swings and is a little too thinly traded for my liking. It went on to fall further which I suspected, but that's the way trading goes and I'm not too fussed. A similar situation happened with CPU which I shorted and closed in the same session. I had a large position size and was just a little tenative about what it would do. This was a case of thinking too much. I opened the trade for a reason - it definitely looks like indecision will turn into bearishness - and I should have left it alone without constantly looking at the depth screen.

Macquarie Bank has completed the handle in a teacup pattern and closed strongly on the back of decent volume. I think it will definitely make some nice gains in the next few days as the bears failed to force it as low as it should have gone in the last week. Appears to be much positive sentiment about this stock.

I'm overall very happy with my situation because I'm closing positions at the right time, managing my stop losses better and waiting for reliable signals. Also, I'm thinking about the near future and building a portfolio that will not either succeed or fall over within one day. This has happened in the past two weeks and left me vulnerable.

Week 3 Summary

2006-04-23T21:57:00.001-07:00

Profit/Loss to Date (closed positions) - $1280 loss

This week
Positions closed - 12; Positions currently open - 5
Winners - 4; Losers - 8; Win/loss ratio - 33%
Biggest Loss - $248; Biggest win - $311

I cannot find the words to describe my fortunes this week. Up and down like a yo-yo. Great frustration followed by optimism. But it really shook me up and forced me to weed out the weaknesses in my "game". My biggest loss and biggest gain statistics basically say it all. And although four wins is greater than 0 (last week), my loss to date is a stark warning to never count your chickens before they hatch.

I was on the verge of quitting as I'm not a complete idiot who likes throwing away his money. Just taking out the easy option is not something I'll be happy to live with. It is now one week from Good Friday. After near death, could my trading account be ressurrected and go on to do great things?

Happy Anniversary!

2006-04-21T05:03:00.000-07:00

Day 14 - Friday
Total Account Value: $5359
Available Equity: $3322
Positions Opened: 3
Positions Closed: 3

My girlfriend and I celebrated our one year anniversay this morning. But not long after waking she had to go off to work and I drove home to see if I could resurrect this trading account. It would be a very pleasing anniversary gift as I grew pretty annoyed yesterday.

It seems there is a money god after all. Most of my open trades "matured" as the day progressed, and at one point I was sitting on a tasty $700 one-day gain. Of course there are no fairytales, but more than $500 is as perfect as it can get in my circumstances.

HSP has performed sensationally and I'm glad I had the foresight to go long when I did. It began so strongly that I pyramided my position by buying another 1666 CFDs and watched as the gains multiplied. If I were to exit now the win would be worth nearly $600. However, the good news is sobered by the fact that similar bursts are a dime a dozen.

This was the first time I survived and profited from a major opening downtrend in the All Ordinaries. This gives me hope - it means I'm getting better at pre-empting individual stock movements. As well as HSP, my decision to go long on CEY shortly before yesterday's close was fruitful. It stormed upwards, eclipsing the three previous day's losses. When a stock shows this kind of pattern there is a danger it may lose momentum as quickly as it appeared, especially in a flat market. Due to opening unpredictability, I'm being more frugal and will take every opportunity to close out positions sooner rather than later. CEY left me $310 up.

AXA and COA continued their slow descent and a new short position in CSM (Consolidated Minerals) began promisingly. I have been watching this stock for quite a while now and it exhibits slow, involatile movement. There is money to be made here if I go with the trend.

Last week I tended to wait on unperforming positions, hoping for good fortune the next day. This time I am smarter. I closed FXJ with a minor profit intact as it seemed to struggle after healthy gains yesterday. Anything can happen after the weekend though my feeling on this stock is still bullish.

Ahh it was a very happy day, but will it last? At least I feel better about splashing out on a health spa massage for my girlfriend and I.

On the ropes

2006-04-20T22:41:00.000-07:00

Day 13 - Thursday
Total Account Value: $4808
Available Equity: $2582
Positions Opened: 6
Positions Closed: 4

I'm starting to feel a little queasy whenever 10am rolls around. Opening action continues to devastate me as unpredictable gaps seem to be showing up on every chart. This morning it hit me like a ton of bricks. In my greatest trading tragedy so far, Coca Cola Amatil (CCL) gapped up higher than last Thursday's opening price despite it seeming that its downtrend would continue. Wednesday exhibited signs of profit taking, as the priced gapped lower and rose a small amount on high volume, unable to break the previous day's low. I went short thinking the trend would resume but was wrong. It was much too foolish a move for my risk profile and I paid a high price. I'm a Pepsi man anyway...

But it wasn't just CCL that made me sad. Despite a brief sunny interlude around lunchtime when my balance traced the positive path of the All Ordinaries it was all bad news. WOW burst through my stop loss and taught me why you shouldn't ignore "dark cloud cover" (red candlestick that opens higher and overshadows a black candlestick). It's so much easier to think positively before the falls have happened. Trading is funny in that way - when you look at the chart a few days later it all looks a bit too simple.

PMN was looking a little shaky so I cut my losses, leaving just SUN teetering on the brink of its stop loss. My balance was terrible now at around $4700. The were only two options remaining - give up or carefully rebuild. Since I'm crazy, I chose the latter and bought stock after stock as the signals appeared.

I started off quite well. Healthscope (HSP) had been doing absolutely nothing for the last month and very little since January when it shedded 29% in two days. Reminds me that I'm not the stupidest trader out there. The sellers had to be selling to someone on those days and I'm willing to bet not all of them were shorting profit takers. I read an analyst report on it from a popular newspaper this morning saying the price was not matching the performance of the company. It gapped open slightly this morning following a modest gain on Wednesday so I went long and held on as it jumped 3.5%.

Very wary of gappy openings in the Australian market, I wanted to even up my portfolio with both long and short trades. AXA showed a MACD-price divergence so I shorted once it fell below the close of its decently sized red previous day. Coates Hire (COA) and Excel Coal (EXC) were behaving similarly, with the latter meeting resistance with seemingly strong seller support. Now 5 stocks in the bag. Unfortunately it turned full circle and temporarily broke resistance before the day was done.

On the other side of the coin, John Fairfax Holdings (FXJ) and Centennial Coal (CEY) appeared to have bottomed out. Both looking especially strong with an engulfing and "three stars in the south" (triple weakening bottom) candlestick patterns respectively, confirmed with volume signals. So although my balance was down, I feel I have set myself up for a comeback. If this doesn't work, what will?

Also, I checked out guaranteed stop loss orders. The offering of my CFD provider is quite pathetic. The price is different depending on the price of the stock, which makes little sense. Placing one on a $5 (or less) stock will cost me $2. This price goes up in $5 intervals. Too bad if I want a stop loss for Macqaurie Bank (currently trading at $69). Also the guaranteed stop loss must be placed at least 5% from the current price. Ridiculous! A 5% loss is huge! Especially with an account value as low as mine.

But wait there's more! You must call the trading desk to set one, and who can really be bothered doing that? With the extent they promoted guaranteed stop losses as part of the package it really is a big sham.

Not so fast...

2006-04-19T00:28:00.000-07:00

Day 12 - Wednesday
Total Account Value: $5168
Available Equity: $3430
Positions Opened: 3
Positions Closed: 5

CFD trading must surely be bad for one's blood pressure. Following satisfying gains yesterday, it all disappeared despite closing off two winners, a first since the 7th of April. The problem was due to an opening surge that leapfrogged stop losses on two of my shorts, MBL and CPU. Most of my losses can be explained by this phenomena - frustratingly the stop loss for Macquarie Bank was set at a price that would have given me a smallish profit. The logical solution is to use guaranteed stop losses, in which the price I specify will be the price my position is closed without fail. But I set them so much that the extra cost might get out of hand. Definitely something to look into though.

It looks obvious on the chart now that MBL was unable to sustain its bearishness despite oversold signals and spinning tops/hammers galore on the chart. Even fundamental analysts are saying the stock is overpriced and recommending a sell. Perhaps the falls will continue but I'll have to wait on that one.

I shorted CPU late yesterday as it had made monumental gains of around 4%, despite the weekly chart clearly pointing toward the beginning of a downtrend after reaching new highs. As the price barely moved I watched the depth screen load up with sellers as the bears seem to wrest control back from greedy bulls. My stop loss was placed two ticks above the daily high. I'm sure some pros were on the scene and shorted with very high volume as I saw evidence of their limit orders appear on the buyer side (round figures belonging to 1 buyer).

But today the price gapped open and I lost. This was probably due to the pros who bought back in after a quick kill and the amateur latecomers who saw a big green/white candlestick and placed buy orders overnight. I had been doing OK with the strategy and pre-emptiveness until the close. Another very important lesson learnt. How could I be so stupid?

I closed Centro Properties (CNP) after it gapped up hugely and locked in a quick profit. As I thought, it crashed back down as the gap was unsustainable.

Later on I erred with using a too-tight stop loss on QBE insurance as the MACD indicated a major weakness - a divergence where the price makes higher highs while the indicator makes lower highs. I jumped in just a bit too early as last minute buying pushed it up to new highs before settling back down into a long-legged spinning top. I will only re-enter a short if it begins to fall tomorrow. I hate market indecision...

Back on the rails

2006-04-18T01:31:00.000-07:00

Day 11 - Tuesday
Total Account Value: $5502
Available Equity: $3592
Positions Opened: 4
Positions Closed: 0

It gladdens me to say that despite my nagging fears, I am not a raving idiot after all. Last week was a testing one - making bad decisions and reading countless opinions on the inevitable failure of short term traders made me feel like a loser. After stupidly admitting to my girlfriend's excitable mother that I owned a blog, I sheepishly refused to send her the link because I didn't want news of my losses to spread.

I spent the weekend relaxing and recharging, while also thinking deeply about market psychology and how a typical stock fares over the course of a trading day. While going with the crowd makes money, you need to pre-empt them to do it consistently. False signals were savaging me. A major aspect I was paying little attention to was market depth. Watching the buyers or sellers mount up is a great forewarning to what the price candlestick will do.

Opening prices and first hour phenomena are particularly interesting. It seems the floor is flooded with amateur traders who have placed their orders overnight. There are also many end-of-day or "weekly" (2 to 5 days) traders like me who are waiting to enter trades based on confirmation signals. The pros are waiting to confuse the masses and profit from their panic and fear, trading in the opposite direction with considerable volume. A slight direction change will cause nervous bulls to sell (if trend is to go long). End of day traders will wait, and if the panic increases, the tight stop losses of more resilient but careless bulls will be hit, sending prices lower. Once the pros have made a killing, they will exit and the trend will resume. Some stocks behave this way more than others, but the threat is minimised when the order book is strong.

Today I waited for Woolworths (WOW) to show strength before I went long, and was rewarded with a decent day's profit. I had my eye on the price, because the weekly chart showed a weakening downtrend (with decreasing volume), and the last day of trading finished strongly. This morning it gapped open above the 50 day SMA, allowing me to enter with confidence.

Suncorp-Metway (SUN) is a blue-chip stock that has been tracking sideways within an extremely tight range for about 50 days. It's difficult not to pay attention when volume increases steadily, as it means market sentiment is improving and it's only a matter of time before a breakout occurs. I picked the direction (upwards) as the MACD indicator had been rising consistently. Since the 20-day SMA had just started to turn up, a gap open signalled the beginning of a burst. I bought 700 Share CFDs, worked a tight stop loss and now I am up $175 in a day.

Last week's surviving shorts continued to fall and a tasty Easter interest payout made them even better. I am considering closing MIG tomorrow as its 7-day correction could soon come to an end. After losses last week I'd hate to press my luck. Come to think of it, I'm a little nervous about what the market will do this week. After some choppiness, the index chart points toward another week of stagnation before resuming bullishness. If the overseas indices crash again overnight, my longs are doomed. Therefore I will be extra conservative with my stop loss trailing.