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Trading, time frames, attitudes

December 9, 2007 By Chuck

I’ve written before about the importance of understanding your time frame when choosing a trade.  You don’t pick a momo stock for a long term investment, and you don’t pick a very slow mover to daytrade.  When choosing a stock for investment purposes, you take a long look at their balance sheet and their growth prospects, taking into account the economic and sector outlook.  For swing trades, you want to be aware of the economy and sector strength, picking your entry and exit based on technical analysis.  With daytrades, knowing what sectors are moving and having real-time news feeds are important.  These trades are quickly affected by news, rumors, press conferences, etc.  Of course, technical analysis and proper money management apply to all time frames.

 I’m bringing up this topic again, because the volatility, the uncertainty, in the markets makes trading more difficult.  Being more clear on your time frames when trading a particular stock can ease the pain a little bit.

The financial problems affecting the market have been brewing for some time.  The volatility we’ve seen lately is only the beginning of the consequences of massive credit expansion, not the end.  What may be ending is the ability to continue to patch the hull of a sinking ship.  This may indeed be the time that quite a few will have to suffer the financial consequences of their decisions.  It is only then that we can rebuild a stronger ship.  What does this mean to you, the trader/investor?  It may mean you will want to change the time frame for your stock trades.  It may not be the best time to buy a particular stock for long term investing, but it could be a good swing or daytrade.  Or vice versa.  There is no way to tell how long this volatility will last, but it will eventually calm down.  That doesn’t mean everything will be fine in the financial world, but it may make trading a bit less manic. 

Our reason for writing this blog and starting our service was to help people hang on to their money.  Yes, we want to help people, through education, increase their profits.  But, Chuck and I have seen traders who chase stocks all over the street, only to end up right back where they started.  Or worse, they have eaten into their capital.  Emotions are always a part of trading, and right now those emotions are running very high.  We had no idea that only two months after the inception of this blog, that the credit market would seize up.  For us, that meant helping people make sense of what was happening even more important, as this is no ordinary event.   To ignore what is happening, to try to put a positive spin on it, is a disservice to any thinking, rational human being.  We do not believe the world is coming to an end, even though the financial upheaval will make trading more difficult, it is not impossible. It may seem to some that we are “missing the run-ups” by being so bearish.  I actively trade every day, but we do not have an interactive site yet, and I will not make daytrading recommendations until then.  As for swing trades, some active traders have been a bit critical that we have not been taking more positions.  Some traders are willing to accept more risk than others.  We won’t criticize those traders for taking the risks, that’s their choice.  We have chosen to be more prudent, as preservation of capital is paramount, and we don’t take money management lightly.  We take our business seriously and do not assume (as some other sites seem to) that our readers simply have money to burn.  I always bristle when I hear someone say that a trader should never invest more than they can afford to lose.  If you are gambling at a casino, then that saying may be true. Whether one can lose some money and still survive is not the question.  But we’re not gambling here. The question, for me, is WHO in the world would go into trading with the idea of possibly losing all of your capital???  Lose your capital? Why would you do that?  This is why money management is so important. 

I know what it’s like to live under various financial conditions.  I know what it feels like to wonder where your next meal is coming from, as well as the comfortable security of earning a living and being able to pay my own way in life.  That’s what money is all about, isn’t it?  Having enough to be able to pay for your needs, anything more than that is gravy, right?  I know very few people who don’t have at least a little worry about having enough money in the future to take care of their needs.  I’ve also come to learn that those who don’t need to worry, NEVER had a cavalier attitude about money, either.

More on this topic (What's this?)
Stock Market Technical Analysis: Possible Inverted Head & Shoulders? (market folly, 8/2/10)
THE CROSS SECTIONAL PROFITABILITY OF TECHNICAL ANALYSIS (THE PRAGMATIC CAPITALIST, 8/17/10)
Get A Dog (Random Roger's Big Picture, 9/24/07)
Read more on Technical Analysis, Historical Volatility at Wikinvest
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The Day that Was – October 29th 2007

October 29, 2007 By Chuck

A quiet day was expected and a quiet day is what we got. Most of the big money holders are waiting for the economic events to unfold this week before they decide on how they are going to position their funds. With the odds in favor (as far as those on the street are concerned) of at least a 25 basis point cut in the Fed Funds Rate this Wednesday, there is some hedging in the financial sectors for an upward advance in some financial stocks. Today we saw light buying in some of the financial’s in the anticipation of a "FOMC bounce" afterwards. Will there be a bounce if they cut rates? Will it hold? Good questions. When the FOMC cut rates on September 18th by 50 basis points and also cut the discount window rate by another 50 basis points the financial’s did bounce. And if you blinked you missed it. Since that rate cut the financial’s continued their downward march. So don’t always think a rate cut will stop the financial sectors from going any lower. They said back in September that a rate cut would stem the bleeding, it did not. Will another cut stem it this time? Can’t say, there is too much weakness in the financial arenas to gauge at this point if another rate cut is going to do it or not. If you were a high risk trader you could put some money on the XLF going into the FOMC announcement, but it is a high risk trade. I will be in cash heading into the announcement, better safe then to get surprised and have the market go against me. Remember that some of the possible rate cut is already getting priced into the market. So there is the potential for a short pop, then a sell off. No telling what would happen if there is a 50 basis point cut, some have speculated that that would signal even bigger problems exist within the economy and that could send the markets down. And on the other side of the coin there are those who say it could rally. We remain in the middle and will see which way it goes, then decide how to play it.

Some earnings came in after the market closed tonight, it was essentially a mixed bag. If I had to put a number on it of who beat and who missed I would say it was about a 50/50 split of beats and misses. One notable stock is SWHC (Smith & Wesson), they issued a dismal earnings report and lowered guidance for the year. In after hours that stock went down almost 26% (ouch!).

A small lesson tonight on the importance of trend lines and how they communicate danger signals to us. Every stock trades in one of three directions, up trend, down trend, or trading sideways. And each trend can be put into one of three categories, major, intermediate, and minor. A major trend is one which is in force for a minimum of 2 years, an intermediate trend is one which is typically a few months to 2 years, and the minor trend is days to a few months. When trading any stock, long term investment or a short term swing trade, always pay attention to the trend.

As you view a stock chart you want to identify the trend by drawing a line under all of the lows as the stock price has been going up. A valid trend is one that can be marked with a straight line and which intersects at least three points along the way, and you project that line into the future so that you can use it as a gauge to see if the trend of the stock remains in force, or if it breaks it. Technical analysis is at it’s core, the study of human behavior. There are many nuances in technical analysis, all of which tie back to the two basic fundamentals of what makes the markets operate in the first place, greed and fear.

For every action on the chart there is an underlying force driving that action, it is either greed (buying up) or fear (selling out). Every bit of news, rumors, earnings expectations, feelings of the company executives, their cash flow, the products they make or sell, and the list goes on and on. Everything perceived or believed about a company is reflected in the stock price. And all that combined knowledge (fact or fiction) comes back down to greed and fear. So when you watch a stock chart trading on a trend line and you see a divergence, or a break away from that trend that means that one of the two basic building blocks of the market has shifted dramatically. In the case of a down ward break from a trend that signals that fear has taken over for reasons which may not be completely understood or known. Sometimes all it takes is a little bit of inside information to be exchanged between a few mutual funds and they decide to sell out, or it could be a rumor on the street of a bad earnings report is coming, any number of things. Think of it this way, a large group of birds is flying over head and you notice that they suddenly change direction. What was it that sent them running (flying) the other way? All it takes is for one of them to get a sight of something dangerous and that fear is quickly spread to the flock. Same on Wall street, but the birds are the traders. In the stock market, when something happens that drives fear to the forefront, we as traders need to be watching for the signs of the flock moving the other way, for they are taking their money with them and the bird that stays behind could be eaten up by the dangerous bird (which spooked them in the first place), or all alone and holding the bag (reduced stock price).

Always remember, that whenever a trend is broken it means something has changed the trading psychologically of those in that stock, it does not matter what caused that shift, what is important is to recognize that it happened and realize that it may be serious. So you should exit the trade to protect your gains before they turn into a loss. Not all trend line failures will offer you enough time to gracefully exit the trade, but many will. Always use trading rules and technical analysis to your favor, it can save you a lot of money.

The chart shown here is a perfect example of what happens when a trend line is broken, it signaled something was wrong, and the next day the company issued bad news. There was a day before the news hit in which you could have gotten out of the trade and held onto your gains before the bottom fell out. Print out this chart and paste it on your wall, refer to it often, for this is why trend lines are so important and how they communicate to us that something is changing in the stock, and it may not be pretty!

Oh, and Smith and Wesson, there was a danger sign on that too! That trend line broke back in September and offered lots of time to exit the trade. Trend lines are your friends, know them, learn them , and use them

 uctt thumb The Day that Was October 29th 2007

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The Most Important Post Since This Service Began!

August 9, 2007 By Chuck
When I created RebelTraders it was to help other investors and traders learn the proper ways to survive the stock markets. I have witnessed too many things over time that just makes me even more passionate about doing this.

I have known people who have lost their entire capital and most of their savings by not knowing when to get out of a stock. I have known people who have gotten swept up in the desire to get rich overnight and then make bad decisions and lose it all. I have seen people get taken advantage of by unscrupulous people trying to line their own pockets at the expense of others.

We all know what Enron is, we all remember how advisers and analysts, who are people who are supposed to be providing objective advice to us were actually part of that cover up. Those analysts kept telling people to buy that stock even though the price was collapsing.

Then add to that the many, many companies that are not even around any more after the “tech bubble burst” in 2000 and 2001. So many analysts kept saying buy the stock, it is so cheap it is a bargain. And while the stock kept dropping the analysts kept saying to buy. Now I’m not saying all analysts are not to be trusted, some are good and honest people. The point I’m trying to make is that you should take anything you are told by an advisor, analyst, etc and then run it through a sanity check. And what is the sanity check? The chart !!!

Do you know that the “buy and hold” investors who were buying stocks in the 90′s when the technology stocks were so hot ended up losing most of their money after the tech bubble blew up. Why did they lose their money? Simple, they kept telling themselves things like “the company will get better”, or they would say “I’m in it for the long term so I’m not worried”, or they fall in love with a company, or a product, or the belief that the analysts or company would never steer them wrong.

Now consider this, another type of investor also started buying stocks in the 90′s, the same stocks as the “buy and hold” person. But this person did not lose his money, he did not get his savings wiped out, instead he is today a much more wealthy person with a large bank account. So what did this investor do to keep his profits while his friends were losing all of theirs? They followed the charts and let the charts tell them when danger is approaching. It is that simple. There is no rocket science, there is no black box of secrets, there is no magic, it is common sense applied to “reading the charts”.

No matter how good you think a company is or how good their products are if the chart signals danger and there is a significant shift in the supply and demand of the stock then you need to get out. If you buy a stock many years ago and it has done well for you all those years then you have a good stock, but even a good stock will have it’s day when there is a shift and it is no longer the stock to be in. The charts tell you when to get in and when to get out.

If your house was on fire would you stand out front and watch it burn without doing anything? Would you tell yourself “it will get better”.. no need to panic. But as you keep telling yourself that there is nothing wrong the house continues to burn to the ground and then you have nothing. That is what happens with “buy and hold” investors who always think things will get better. And then they lose their money and later they say to themselves “what happened?

If you practice good money management, know when to spot danger, and know how to read the charts you will NEVER get wiped out. Let me give you a real example of “buy and hold” investment compared to technical analysis trading.

For this example I will use Nortel Networks (NT). Nortel Networks was one of the tech bubble companies. In the late 90′s everyone who was buying it and thought nothing would ever go wrong. The stock was on a huge run, they had great products, they were growing by leaps and bounds. Then the bubble burst. For those that were “buy and hold” lost huge amounts of money. They lost the money because they were the type that would stand in front of their house and watch it burn down instead of calling the fire department right away to save it. IF you do not take an active role in managing your investments and practicing good money management (using stop loss, etc) then you are not going to survive in the stock markets.

Take a look at this screen capture from my MetaStock software program. MetaStock is an excellent software package for technical analysis. It also has a system tester to lets you go back in time and apply “what if” scenarios. Tonight I ran a test on Nortel Networks. And it is a VERY simple trading methodology, no black magic. I ran Nortel through a simple trading discipline plan which used a 5% stop loss, and to buy and sell on a very simple moving average indicator(in other words it uses moving averages to determine when to buy and when to sell, just like we use in our technical analysis now).

Here is the test:

On January 3rd 1995 you set aside $5,000 to invest in Nortel Networks. Your broker pays 1% interest on your money that is sitting idle (not in a trade), and you rollover your gains whenever you sell into the next time you re-enter the stock.

If you put that $5,000 into Nortel and you are a “buy and hold” investor then today your profit would be $-2,677.81, Yes that is a negative number!

back+test+on+nortel The Most Important Post Since This Service Began!Now if you used the charts to tell you when to get in and when to get out that very same $5,000 would today be $29,166.22! See how some very simple trading discipline and technical analysis turns a “losing your shirt” into making good money. And you did not have to be an active day trader to accomplish this. Using the technical analysis criteria for this test resulted in only 24 trades since 1995 when you first started.

We are currently in a very volatile market. There are many stocks that are now turning very bad. Some of the very best companies in the financial sectors that “buy and hold” investors will say “everything is fine” could end up just like those who invested in Nortel back in the tech bubble. IF the “buy and hold” people don’t take notice to a significant shift in investor confidence as viewed on the charts and take their profits then they could end up riding it all the way down to the bottom. And you know what is even more sad. Some of these people who have lost so much money will still say “it will come back one day”. That is nothing more than denial of what has happened. And people who are in denial of what is going on around them will fail.

The very best and smartest traders and investors know when to be in and when to be out. During this market turmoil we have now I have not been as active in the markets as I would be if we were in a normal bull market. I have some watch list items and I have a few open trades but I will exit them faster than you can say “fire” if they start to go red (that is what a stop loss is for). I am not trying to jump on every stock I see going up during this time. Because I know from experience that there is always a time to be trading actively and a time for sitting on your money and waiting for the storm to pass. You do NOT have to be trading every day. You must know when it is prudent to just sit it out and watch safely from a distance. I have been receiving some emails during this terrible financial market/credit crunch crisis about why I am not trading more. Some have emailed me and told me that they bought this stock or that stock and wanted to know what I thought of it. My first reaction is “WHY”. Why would you be trying to buy stocks that are still falling. Why would you be buying a stock that is bouncing in an unhealthy sector. Why would you be buying a stock that some one said in an email SPAM message (stock pumper). Why? If you feel the “need” to be trading all of the time then you are more likely to lose your money than if you just use some control and know when to sit it out.

As a investor, swing trader, day trader, whatever kind of trader you are you have only 2 things you need to remember. And they are in this order:

  1. Control your losses. Keep risk to a minimum. Only after you learn to practice this step can you move to step 2.

  2. Make profitable trades.

The charts of the financial sectors have been signalling trouble for weeks. I have said a month ago that the financial crisis was going to spread. I stopped actively entering into new swing trades back then. I said that trading in this kind of environment is too risky. Now we see that it is getting worse. Many stocks of banks, brokerages, and other financial related companies have lost huge amounts of their value. IF your a “buy and hold” person you are feeling the loss hard. If you had used the simplest of technical analysis tools you would have known when to sell. You would have sold, taken your profits, and left your money sitting in your brokerage account (most of them pay a very small interest on money that is just sitting in your account and not in a stock) while you watch from a safe distance the market get worse. Then later when the storms are over you take your money and buy the stock again if you still like it. Now you are able to buy more shares because the price is less and then using technical analysis again you stay with the stock until you get another signal to get out. That is how you make money consistently. Take a look at the books I have listed on the right side of this web site. They are there for a reason. Every one of them I have read, every one of them is the best in my view, and they are worth every penny. If you are just starting out get the book written by John Murphy “Technical analysis of the financial markets“. John is an excellent writer and his books are easy to read. Then get the book “Trading for a Living” by Dr. Alexander Elder, and then the book “Trading in the Zone” by Mark Douglas. If you start with those 3 books alone you will learn how to make good trades, learn how to get out of a trade to protect your capital, learn the art of technical analysis, and learn how to be a disciplined trader.

I will close out tonight’s message with a quote from one of the best.. Jesse Livermore:

“A loss never bothers me after I take it. I forget it overnight. But being
wrong – not taking a loss – that is what does damage to the pocketbook and to
the soul”

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The Day that Was – July 26th 2007

July 26, 2007 By Chuck

And what a day is was indeed… I have some very interesting market analysis tonight. Be sure to check out all of the charts in this post!

Tonight I am not going to talk about individual stocks. Instead I am going to focus on some of the market sectors and the broad market health. Before I dig my teeth into that I will highlight the events of the day.

In the pre market we had earnings from more home builders and as expected the results were terrible. Perhaps even worse than some were expecting. But one thing that stood out was that the housing problems appears to be spreading into the commercial construction now. This was further reinforced when the Durable Goods data was released this morning. It was showing capital expenditures had declined whereas business spending was concerned.

Then we also had today the growing fear that the sub prime (and now the prime) lending issues could erode some of the big M & A activity. Large company buyouts, mergers, etc. would be impacted by more problems in the lending sector. And today a lot of companies that are already in a takeover (but not yet finalized) pulled back some as investors were growing fearful that the money needed to make the acquisition may not be there now. This may be more fear than reality but it is still worth mentioning as it is important. Once private equity and/or other companies can’t secure the assets they need to do take overs, mergers, and acquisitions then the bull market will then be running on only 3 legs.

These events sent the market into an outright selling frenzy. At the end of the day all three of the major indices recovered some but in my view this was not all bargain hunters stepping in to start buying. It was a lot of shorts covering at the end of the day to take their profits. When the major indicators today showed the panic selling was underway hedge funds and other very large money movers started shorting just about anything with downside room. And these hedge funds that shorted large amounts of money today made a good deal of cash today when in the last hour they started covering and banking their profits. Remember that on just about any down day that at 3pm you will see a bounce. The last hour is when shorts start covering and bargain hunters come in for the kill. Today I feel it was more short covering than bargain hunters.

So that is what got the selling started. Early in the morning RebelTrader swing trade NightHawk Radiology (NHWK) gaped up at the open (last night they released good earnings) but I quickly saw what was looking like heavy profit taking and the price was going to fall through the floor. So I sold my entire NHWK position. That swing trade provided me a 5% gain today. Later I added to my position on FEEC when it broke above the next buy point. Because of the market conditions today I raised my stop level to $1.60 so that if FEEC fell back too much I would exit the trade at break even. And that is what happened. FEEC is still good, I will re-enter when the time is right.

That leaves only one currently open swing trade and that is WWAT. And that is sitting today at a 16% gain.

Ok, now I’m going to move on to some in depth analysis of the market in general. Some of the things I’m going to say in the next few paragraphs may be a surprise. What I mean by that is some of my analysis goes against some of the talking heads on TV. sox+weekly The Day that Was July 26th 2007But I call them like I see them and I feel we still have trouble ahead of us. There are some significant resistance levels that need to be overcome in order for me to believe that the tech sector is ‘hot’ as some are saying. I’ll start off with that. The chart shown here is the “SOX” as we call it. It is the Semiconductor Index. Look at the chart and observe that currently we are right up against a resistance level. If the overall market continues to be weak then this resistance level will be strong and the index will turn around (and the tech stocks with it). If however the index is able to “break through” the resistance then I will be bullish on tech. But until it does tech remains questionable and I will trade it with extra caution.

bank+index The Day that Was July 26th 2007The next chart is the Philadelphia Bank index ($BKX). It shows that this week we fell below a major trend line. Once a major trend line is broken we are in new territory whereas we are no longer in an uptrend. Now the index will trade sideways, fall more, or have trouble getting back above the trend line (remember that once support is broken that support line then becomes resistance).

home+builders+index+7 26 07 The Day that Was July 26th 2007The next chart is the Housing Index (a good index for all things housing, construction materials, etc). The chart ($HGX) shows a head and shoulders pattern. In technical analysis a Head and Shoulders pattern is the name given to a chart that exhibits three main events. A rally that peaks (left shoulder) and then another rally that is even higher (head) and then followed by another rally that is lower than the previous one (right shoulder). From those three events one can draw a neck line. When a stock or index fails the neck line the trend is taking a turn for the worse. This chart says we have larger troubles ahead in housing, construction materials, and in turn the mortgage business.

s p+500+large+cap+index The Day that Was July 26th 2007Next is the S & P 500 Large Cap Index ($SPX). On this chart notice how we have come to rest right on top of a very significant support region. This support must hold otherwise we will be in for an even bigger market meltdown.

%24NYA+weekly The Day that Was July 26th 2007Next chart is the NYSE Composite ($NYA). Same thing as with the S&P. The index has come to rest right on top of a significant support line. This must hold! Otherwise lookout below..

VIX+weekly+annoated+chart The Day that Was July 26th 2007Next is the Volatility Index ($VIX). I present this chart in a new way tonight. I examine this chart in terms of when bull markets and bear markets have been in control. Remember the big market bubble that came crashing down in 2001 / 2002 (that was the big tech bubble burst). That was a bear market. Notice on the VIX chart the volatility in 2001, 2002, and 2003. See how high it was back in the bear market. Then at the end of 2003 and early 2004 we started a new bull market and the volatility declined all the way until 2005. Then the volatility started trading in a rectangle pattern up until now. But today the volatility broke above the pattern! Could it be that we are seeing the very early stages of a new bear market approaching? Wait until you see my next chart!

new+highs+ +new+lows The Day that Was July 26th 2007This chart is the NYSE index of new highs – new lows ($NYHL). Look at this chart carefully. I have indicated where the bear market was and the current bull market is. But what I want you to notice is the blue trend line drawn above the new highs. See how over the past 3 years the trend has been declining. This tells me the economy is declining and taking companies with it as reflected in the decline of new highs over the past 3 years. Some interesting things to ponder.
Now I am not saying that we are on the verge of an outright bear market. But I am saying that we are at a difficult time and finding good swing trades will be tough. But I will do my best to find them for you. There is always money to be made… finding the right plays at the right time is what I am here to help teach you how to do.

Good night Rebels!

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Durable Goods data

July 26, 2007 By Chuck

I said in my earlier post that construction problems were now spreading into the commercial sector. The durable goods data confirms this as capital expenditures has declined.

Keep your stops in place on any trades you have active. Remember, good traders and investors will always put a tourniquet on a loss. Never let a trade take you more than 8% in the red. 8% is the absolute maximum. Personally I try to limit my losses on a swing trade to no more than 4% (and sometimes even less depending on where support levels are).

Please…. never invest or trade on hope. That will erase your money. You invest and trade with a plan and that plan is to ALWAYS limit your losses. When a trade or investment does not work out you sell and move on. Don’t keep holding it and think it will get better. What if it does not get better.. then you have an investment that starts out at a loss of say 10%… you say “no problem” it will turn around, then your down to a 25% loss. Now you say I can’t sell here because it is too big of a loss to sell here. I’ll just hold on and one day it will come back. Then your investment is down 50%. Never tell yourself I will hold and wait for a turnaround. Because you don’t know if it will. Don’t trade/invest on hope… Always have a plan and get out before your losses get bad. No matter how much you like a company or their products you never let that influence your investing smarts. If you go red you cut the loss and limit the risk to your capital.

So many investors fail because they fall in love with companies and think the companies will never do them wrong. Or they let their investment brokers tell them to keep holding on to a bad investment. Just like financial advisers were telling investors during the Enron collapse. Listen to your own logic and discipline, it is your money… not theirs.

More on this topic (What's this?)
The Upside of the Downside (Financial Armageddon, 8/19/10)
DIA – Diamonds (Last:106.39) (, 8/3/10)
Using Other Traders’ Mistakes to Improve Your Trading Performance (The Essentials of Trading, 8/6/10)
Read more on Construction, Triarc Companies at Wikinvest
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Repeat of a commentary I wrote…

July 12, 2007 By Chuck

With the markets getting attention again with the new highs achieved today. I want to share an article I wrote some months ago. It highlights how one must remain in control. Don’t get caught up in the excitement of the markets, or of any particular stock for that matter. Here it is:

The stock market is alluring with its vast amounts of money being exchanged
every second.

The sights and sounds of the floor of the stock exchanges inspire in us the
images of a fast paced nose to nose horse race, the fever pitch of a baseball
game, the feeling of rolling the dice in Vegas. It is sexy, it is powerful,
and it is addictive.. It conjures up within us all the dreams of being
instantly rich with the roll of the dice or the well placed bet on which horse
will win..

For stock traders and investors the dreams of fortune come from “winning
the game” of stocks. The problem is that there is no one throw of the dice or
one pull of the slot machine handle.. In Vegas you can loose everything on
one roll of the dice.. In the stock market you can not approach your plans
of being wealthy the same way you would roll your dice on the tables in
Vegas.. You have to control yourself, plan your next move, and strike like
a tiger when the time is right. And more importantly you have to sit on
your chips and only gamble with a percentage of your chips at any one
time. That is how we manage our portfolio and protect our
capital.

Because in Vegas if you bet the farm and the dice don’t stop spinning in
your favor.. you’ve lost the farm and your out of the game with nothing. In
the game we call the stock market.. there is no “blowing on the
dice”… there is no “come on baby…daddy needs a new pair of
shoes”… For if that is your approach to the stock market then you have
already lost the game.. for you are relying on
hope… not a strategy.

Walking up to play the stock market game requires a whole different
mentally. Sure the attraction of fame and fortune is what brings many
traders.. But the ones who win are the ones who come into the game with the
plan of not winning. Yes.. I said that correctly.. Let me say that
again.. the winners in the stock markets are those that plan every move,
every step, every trade with the intention of not losing any money.. Accept
little looses and let the winners add up. If you run into the stock market
expecting to win big in the first few weeks… you will be out of the game
in no time.. Your approach to the stock market game must be to take bits and
pieces at a time.. Don’t go for the gusto in one shot… that is the
wrong attitude and will drive you to make bad trading decisions. Winning in
the long run requires careful and precise moves… such as a chess game.
Don’t let the lure of the ‘big money’ drive your trading decisions. That
will lead you to the soup lines. Instead make it your plan to NOT lose any
money, then the money you gain will add up slowly. This will also allow you
to remain focused on your trading style and remain disciplined to that trading
style.

Once the heat of the race takes over your emotions then mistakes will be
made.. And the ones who remain cool, calm, and in control of their strategy
will be the ones taking your money when you get wrapped up in the heat of the
money. Remember… when we perform technical analysis of the charts
and apply the understanding of greed & fear it is WE that will
be taking the money away from those being caught up in the heat and
excitement of money.. The stock market can be a vicious game.. the
money made every day by traders is not mysteriously printed
somewhere… For every dollar someone makes… someone has lost.. And
in order to be on the winning side.. remain in control.. don’t let the
excitement and lure of big money take over your emotions.. For if you do
then those that sit on the side lines; disciplined and waiting to strike; will
be there to take the money from you.

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Current Rebeltrader portfolio status

July 12, 2007 By Chuck

As of the market close, July 12th, 2007 the current open trades:

WDC 4.4% gain (open)
AKS 3.8% gain (open, average cost $38.58)
ONT 3.3% gain (open, average cost $2.77)
BIG 2.9% gain (open, average cost $29.91)
GRP 2.2% gain (open)
ALGN 1.2% gain (open, average cost $25.29, multiple trades)
NTGR -0.9% loss (open, average cost $38.79
WWAT -2.2% loss (open, multiple trades)

JDSA -5.3% loss (closed today)

Multiple trades means this is the second time a trade is being attempted on that stock. The gain/loss calculation takes into account the gain or loss from both trades!). Gains/losses are calculated on the average cost where the stock play has been to scale into the trade.

Money management stems losses and keeps the winning trades in play. You do NOT have to win every trade. That is not possible by anyone. All one has to do is win more than you lose over the year and your ahead. After each trade is completed you put that cash right back into your capital for use in the swing trade methodology, increasing your buying power as time goes on. Remember, take your trading capital you set aside for swing trades and divide it up into 10 parts. And each part is what you use for one swing trade,one stock. So no more than 10 stocks will be owned at any one time.

Where you read that I scale into a trade with a 1/3 or a 1/2 that means I have taken that one 10% part and cut it into more parts. This way I enter into the trade a little at a time until the whole 10% part is loaded into the one stock. This is done to protect capital. The more the trade works the more you add until it is loaded. The scaling into a stock is even more important in times of extreme market volatility where it can change direction in a flash. Under normal conditions entering a trade is usually in 1/2′s and in some cases (depending on the situation at the time) will enter the trade with the entire 10% part all at once.

For the new members of the site please read this earlier post. Click me!

If you are new to the concept of swing trading please, I encourage you strongly to start out by paper trading and reading some books on swing trading. Never put all of your money into one trade, ever! That is financial suicide. Practice how to manage your capital and it’s 10 pieces for swing trading. Get a feel for how swing trading works and the concept of compounding your gains into the next trades.

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The Day that Was – July 11th 2007

July 11, 2007 By Chuck
Today the market was able to recover some of its big drop from yesterday. Yesterday the big driving force that made the already nervous market take a dive was that ugly word popped up again. That word is “sub prime”. Any time the market hears that word there is a fear that runs all the way down the spine of the markets. Personally I feel the sub prime issue is still looming over the economy and it will manifest itself into other areas over time. We are not done hearing about sub prime woes.

Today the market was helped by the M/A news of Chaparral Steel being purchased by Gerdau Ameristeel Corp. That boosted the metals sector today. And the rebeltrader portfolio holding A K Steel Holding Corp (AKS) got a boost from that today as well closing up 1.78%.

Portfolio holding Grant Prideco Inc. (GRP), an oil services sector play remains in play. I am still bullish on GRP. Yesterday Motley Fool mentioned that GRP is still on their 10 highest rated stocks list per their investors subscriber base of recommendations.

Yesterday I took a position in JSDA as it was advancing throughout the day after it had closed above a key support level ($17.00). The entry price was $17.85. Today JSDA sold down to $17.07 on a CEO interview that made it through the markets as being “not so hot”. I watched the interview and while the CEO was not well spoken he did not say anything in my view that warranted a sell off. But one always has to remember the market does not care about the old saying “what have you done for me lately”, but instead wants to hear more of what are you going to do for me tomorrow. The CEO addressed that by the end of the year they would be introducing some sort of new product. For me it does not matter what the CEO says or not. I’m playing the chart. And for now $17.00 is still a support line that if there is going to be a leg up it has to start from somewhere. And $17.00 is that starting point. Every swing trade has to have a plan. You can not just buy something you hear about or see flash by on a ticker window showing a big gain. You have think like a tiger, stalking your prey. A tiger waits for the right moment to attack. JSDA was a stock that ran from $14 to as high as $19 in the span of 3 days. It was a moving target in the middle of a freeway at rush hour. Trying to rush into traffic to catch it could either get you run over or when you caught it the stock could change direction and head for the off-ramp. Smart traders will wait for a setup. The setup was the formation of a base above $17.00. That we got, we made the kill on the move up out of the base (albeit a short time frame base) and we will play it by the book. If it fails the base then this stock is not ready for prime time yet.

Discipline is always the key. Never buy any stock that is being talked about in the news blindly without looking at it carefully, plan your attack, and wait for the conditions to establish and then you have your trade. Have a plan and trade the plan.

Today I entered ALGN on a very healthy advance. The volume was good and it closed up 5.23%. Today it set a new 52wk high. I did not enter the second 1/2 of my swing trade funds to this trade yet. Although it did clear the second buy point it did it at the end of the day and by only a couple cents so I will wait until tomorrow. If you had a pre programmed trade setup to grab it at the second buy point then that is fine, you may end up with a better entry than I will when I enter my second buy.

We are still in a place I don”t like being. We are still in this sideways trading range on the major indices and it’s makes swing trading difficult. But perseverance I have and I will keep looking for good trading ideas. For those of you that email me asking me what are some good trades I can only tell you that I have a list of stocks in my office up on the wall that I like, but I am stalking them and looking for the setups to establish themselves. Over the weekend I will post a picture of the RebelTrader ‘research department’ and you will see my wall of stock plays.. LOL

I hope all my fellow Rebels had a great day and to all I wish a wonderful good night.

p.s. – Today I was contacted by Lindsay, a wonderful lady at http://www.ino.com/ asking if I would be interested in providing some guest commentaries for their site. So from time to time I will provide her with some articles that I write and she will share with me some of their content in return. Thank you Lindsay for considering my market views as worthy for your site.

Updated ONT and ALGN charts:

ONT+7 11 07 The Day that Was July 11th 2007 ALGN+7 11 07 The Day that Was July 11th 2007

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