Trader Interviews- Modify your Trading Methodology According to Professionals

Trader Interviews

Learn from actual successful traders, besides myself, as to how to trade confidently and successfully. Trader Interviews features interviews from active traders across the states. They ask them about their trading methodology, the type of tools they use, and their psychological mindset. Many of them have been trading for many years and have beaten the S&P 500 every year. The great thing about this site is that they interview an array of successful traders. Some traders focus on day-trading and others on mid to long term trading. There is something for everyone. It’s a great way to get a different perspective on trading stocks. I’ve actually taken parts of their strategies and incorporated them into my own. Why do you think I’ve been so successful?

http://www.traderinterviews.com/

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Trading Psychology for this Quarter

This quarter, I’ve been able to emotionally detach myself from my trades so far. Part of it is due to the fact that I’ve had more on my plate lately and haven’t had the time to monitor my trades as closely; the other part is that I’ve developed somewhat of an indifference to the money in my portfolio. It’s not to say I don’t care about the money at all, I’ve just been emotionally detached from it to a certain extent. This lets me concentrate on the actual stocks and their charts instead of worrying about the dollars.

My heart doesn’t drop if my stock goes against me. If a stock goes down one day, it’s okay as long as the trend doesn’t break. Even in a perfect stock, there will be pull backs and I don’t think there’s ever been a stock that has been up every single day of the year. There have been times this year when I’ve been wrong and still made money! The reason is because of how I manage the trade (Cut losses, Let Gains Run). I have to keep trusting my trading plan.

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Missed Opportunities. Ride the Trend.

GOOG, AAPL, DECK, GS

These are four stocks that I am going to get into as soon as there is a good entry. I've been watching these stocks for a long time and for whatever reason, I haven't poured money in them. I've watched them double, triple, and quadruple in value.

DECK's 26% gain today was remarkable. I can't let those profits slip away.

Its time I join the fun, but at the same time, I am not going to enter blindly.

EDIT: LULU looks like its setting itself up for a good entry....

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Prepare For the Next Trading Session

Each day, at the close of the trading session, I write down an action plan for what I plan to do the next day. My action plan is based on empirical judgments I make about the most recent candlestick stock charts.

First, I scan through my list of filtered stocks and look for potential buys or stocks I can put on my watch list. After I’ve filtered my filtered stock list, I look at each particular stock technically. Then, I predetermine my actions for the next day.

Under what circumstances will I enter stock ABC? If it hits a certain level I tell myself that I will enter at this point or if it reaches overbought I won’t touch the stock. If I do enter a trade, I determine, prior to when I execute the trade, where I will put my stop. In short, I write down all the major variations of what could happen to stock ABC the next day. Then I write down how I will react if X happens or Y happens.

Incidentally, AIXG was one of my most profitable trades this year. I traded it in and out for 50% gains.

Judging by the above chart there was resistance at around $9.75, which has since turned into some kind of support. This means that the stock has developed a “foundation” and the price of the stock is holding above that support price. At around July you can see that the stock had trouble getting over the $9.75 price. Keep in mind, support and resistance lines are only there until they are not. These lines don’t mean that the stock will never fall below this line or break through it; it simply means that something is holding the stock at above or below a certain point for X amount of time.

Judging by this chart, I would determine what I would do if:

1) The stock falls below 9.75 during the day- I would then not enter this stock because to me it would have broken the 9.75 support

2) The stock goes up the next day – I would probably enter because my stop would be at the support line. The risk would be around 50 cents or so depending on where I buy the stock at.

There are variations as to what you can do based on what happens the next day. I prepare myself for general situations (if it goes up or down) then I act according to what I’ve written down.

This way I am not emotionally clouded by price fluctuations when the market opens the next day. I can keep a clear mind and just trust my strategy.

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Price of a Stock

The reason companies split stocks is to make their stocks appear inexpensive. If you own two shares of ABC and the company decides to split the stocks, you now own four shares of ABC. Each share costs you $5.00. Whether you have two shares before the split or four shares after the split, the total value of your stocks remain the same ($10). Splitting a stock increases the number of outstanding shares, which increases the liquidity of the stock. Ultimately this results in the bid/ask spread being different… yada..yada…These are the main reasons for a stock split.

As an investor, you shouldn’t let whether a stock appears to be “expensive or inexpensive” (in real value terms) affect if we buy a stock or not. What I mean is, just because one share is trading at $100, it doesn’t make its overvalued. Take GOOG for example, many people believed it was trading too high at $200, $300, $400, and now it’s trading upwards to $650. Similarly a stock trading at $1.00 is not necessarily inexpensive. Oftentimes traders won’t take a trade like GOOG because it’s trading so high. Then they end up buying junk stocks at $1 a share hoping they somehow sky rocket.

It’s better to buy a stock you know has a fairly good chance of going up in value than blindly buying cheap (monetary value) stocks and hoping that they go up. When I first started trading stocks, I took the idiot approach and bought cheap stocks instead of quality stocks. I ended up getting burned many times.

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Paper Trading (Stock Simulations) & Trading Psychology

Walk into a room of stock traders and ask them if they’ve paper traded before. Most, if not all, will say they’ve paper traded/used stock simulations at one time or another. When I was beginning my trading career, I didn’t put my money in a discount brokerage and trade right away. I started off papering trading- stock trading with pretend money.

Although, paper trading/ trading simulations can be useful at times, most simulations don’t accurately reflect true trading conditions. There are several simulations that start you off with a million dollars in your portfolio. If you are a beginning trader, it’s possible, but highly unlikely that you will be beginning your career or let alone hobby off with a million dollars. But, more importantly, paper trading rarely allows to you experience the emotional roller coaster you may be on when you trade with your own money.

Here you are trading stocks with a million dollars of nobody’s money (pretend money). Would you care if you lost it all? Probably not. If you lose it all you could always start a new account and load it up with another million. No big deal, right? I digress, under this approach, not much thought goes into selecting your trades, if any at all. This means you aren’t being serious about trading, which under an actual account, can lose you money. Having said this, it’s possible that you act very careful with your allotted million, but regardless there’s a big difference between trading with fake money and trading with real money. Let me tell you why.

When you start to trade with your own money, suddenly a $1000 loss makes your heart drop. Conversely that $3400 gain can make you jump for joy. In a simulation account, a similar result might prompt you to say “Oh great I gained $3400, but I can’t spend it so who cares?” The emotional factor or trading psychology is missing in stock trading simulations.

When I first decided that I wanted to get in on this stock market action, I did very little simulation. At most I spent two months with simulations/paper trading. Like many motivated and enthusiastic beginners, for the first couple weeks, I was very dedicated to the simulation/ paper trading. I tried to learn from my mistakes and develop strategies to avoid big losses or secure big gain. I imagined that virtual million as being my own money. But, I wanted to “feel the million in my hands”. I couldn’t get myself to really give a damn as to what my stocks were doing.

After two months, I took the plunge and jumped right into trading with my own money. I figured it’s been long enough, messing around with play money. If I am going to make mistakes and learn from them, I need them to truly start making an impact on me. At first, I was very protective of my cash and had no idea as to how to keep composed or remain calm and collected. When my stock dropped even one percent, my heart would drop and I would freak out. I thought if my stock dropped more than five percent, I would have a heart attack. I am sure that you can all understand that when your emotions start to play a role in anything, your logical judgment becomes clouded. People who seem logically and sound minded suddenly lose it and go berserk. What good does a trading strategy do if you can’t execute it because your mind is going bonkers? Keep a cool, collected, and sounded head.

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Maserati Quattoporte Sport GT S

Maserati's latest 393-horsepower super sedan.

$ 110,000 car

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Progress Being Made At My Investment Banking Internship

On October 1^st, I mentioned that I would update my audience on the progress I was making at my mergers & acquisitions internship. With the exception of the financial statements (Income Statement, Balance Sheet, & Retained Earnings Statement), the PowerPoint presentation is nearly complete. In short, the PowerPoint presentation tells a “story” about the company. It reveals to potential buyers our seller’s products, services, company history, target markets, etc. In these informational packages, I am almost always working with confidential information.

Now let’s think for a brief moment.

As a buyer, anytime you plan to spend hundreds of millions of dollars, ideally it would be advantageous to be somewhat knowledgeable about your purchase. In the case of buying businesses, as a buyer, you want to know the ins and outs of a company before you decide to take any actions.

For the seller, the problem is revealing too much confidential information to the extent in which it could end up hurting the seller’s company. Revealing confidential information runs the risk of larger companies “running away” with the seller’s ideas and possibly mimicking a similar product.

For the past few days, I’ve been working on a one page summary of the business revealing the seller’s identity, customers, markets, manufacturing, reason for transaction, and a couple other factors.

From there, if a buyer shows genuine interest, we would send them further information such as the PowerPoint presentation and what not.

The next step I will be taking is compiling a list of potential buyers and their contact information.

*Keep in mind the audience here are CEOs, CFOs, and upper management. They will be the ones deciding if they want to acquire a business for X million dollars. The previously mentioned is the reason why my PowerPoint and one page summary of the business has undergone numerous drafts and revisions.

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The Possibility of Monthly Reviews is Near

Previously, I had mentioned that I’ve hit a rut as of late. I believe the only way to get better at this point is to review my current performance and determine which areas are my strengths and weaknesses. One way I can do this is by having monthly reviews much like how Bullish Jim has done. Bullish Jim has been trading ten years. This year he began swing trading and is currently up about 7.5+% for the year.

At one time or another all of us have made the same mistakes Bullish Jim has. I think we can all learn from some of his reviews, which is why I’ve posted it below.

Here are some of his reviews:

1) I've been a pig at times. Rather than taking a quick gain when it has been handed to me, I've held on too long and watched gains shrink or even turn into losses.

2) I've been undisciplined. Holding non-trending stocks too long, failing to keep stop loss orders in, and failing to adjust stop loss orders to protect gains are probably my biggest blunders in terms of discipline.

3) I've been too cautious. While I was an average of 96.1% invested for 2006, my average invested for 2007 has been just 81.2%. It is very hard to beat the indices if you're sitting on an average of 20% cash at all times. My excessive cautiousness peaked in the past couple of months as I averaged just 72.8% invested for the months of August and September.

Like Bullish Jim, I will continue to work hard to improve my trading. I'm confident that I can maintain the momentum, which I picked up the past few weeks, the remainder of the year.

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Zecco Changes its Fee Schedule

Zecco is an internet discount brokerage.


What separates them from other brokerages is what they have to offer:

Notably

- If you have $2,500+ in the account they give you:

10 Free Equity Trades/ Month, $4.50 thereafter

- If you have less than $2,500 in the account then it is $4.50 per Equity trade

For Option Traders it is $4.50 per trade + 50 cents per contract.

Previous the the change in their fee schedule, they were offering 40 Free Equity Trades per month. But, because they are looking to improve the number of customer service representatives, trading platforms, and such, they've lowered the amount of free equity trades from 40/month to 10/month. After the allotted free equity trades, Zecco was also offering $3.50 per trade. This is a 30% ($1.00) increase per trade. Still, Zecco is cheaper than most brokerage firms.

The good news is that for existing customers the trade commissions don't kick in until January 1st 2008 (next year). For new customers who sign up after October 1st 2007, they will be under the new trading commission system this year.

For me, this trade commission system means that I will be more selective in selecting stocks. There was a tendency for me to buy less than favorable stocks because commissions were ZERO. Now that I am only allotted 10 trades per month, I believe this will help me identify only the best stocks to enter and trade.

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On Blogging

I've am coming back late from school and work. This is something I didn't predict. What I need to do now is to write up a bunch of blog posts and then post them up at the beginning of the day. Most probably this weekend I will be doing that.

Until then... Hasta Luego.

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Busy Monday; Luckily the Markets Have Done Well

Long ass day today. I didn't get a chance to check the markets because I was extremely busy at work today.

I got in the office at 8:00am and was preparing due diligence material on a company that my firm is looking to help sell. We are in the early stages and are still gathering material from the owner who is looking to sell the company.

I've been working on a powerpoint presentation summarizing the company's financials, structure, markets served, future opportunities, etc. The powerpoint presentation is about twenty - twenty five slides, which meant I had to cut a lot of the material out of there and leave something to be desired by the buyers.

Hopefully on Wednesday, my principal/director, will be able to hold a conference call with the owner to see if we can get some more information to finish the powerpoint presentation.

From there, we will be creating a one page summary of the company (keeping the company anonymous). This is to give enough information to the buyer without giving out confidential material. Also it helps my firm determine if a particular buyer is actually interested in buying the business. If the buyer shows interest, the buyer will have to sign a letter of intent and then we can release further information about the seller's company.

Unless something drastic occurs in the markets, I won't be trading tomorrow.

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