Sunday, June 26, 2005

The Art of the Trade

The few people I know of who are successful at trading all have one thing in common, they have an edge. What is an edge? An edge is a technique, or a special insight, or understanding, or technology that sets one apart from the trading hive. Success at trading doesn't flow from the mundane. It is crafted by developing a special skill or approach to trading that is applied in a consistent, disciplined and objective manner.

I got lucky last week with SFE, $1.10 to $1.58 at it's highs, banking a nice chunk of that rise. But I didn't know ahead of time that SFE was a 40% winner. It was just another Insider-Buy, a system trade, that fulfilled all my criteria for buying and as such, the trade was taken. There have been plenty that don't work that well and some that don't work at all. But as my tedious back-testing suggested, most of these I-Buys that meet my criteria for a short-term trade work, so I take them all. That's my edge with I-buys, a way to collect them early in their public dissemination, and way to match them up against my own filters and a way to execute the trade fast, very, very fast.

I haven't talked much about my other techniques, one of which has been my bread and butter trading tool for two years now. It's the one I describe in my profile and I have yet to figure out a way to disclose it here without compromising my edge. Sorry, but only a few of us can get through that door at once.

My point it that these consistently winning trades don't come from watching Jim Cramer or subscribing to Growth Stock Outlook. They come from technique, from a cultivated edge that sets my trades apart from the ordinary and that doesn't rely on luck as much as discipline in attaining success. SFE was lucky, yes, but it was luck that I made happen by acting in concert with my rules for system trades.

So the art of the trade, simply put, is to find something that works and trade it.

Wednesday, June 22, 2005

Cramer on Google, July 2004

Editor's note: Google has risen nearly 200% since this article was written.

RealMoney by
How Google Has Ruined Its IPO Deal
Tuesday July 27, 2004 8:58 am ET
By James J. Cramer, Columnist

Someone has to say it, might as well be me: If you wanted to do everything you could to kill the Google deal, if you wanted to do everything you could to be sure that you generated the worst deal ever, you would do exactly what Google's done. Let me count the ways.

First, you buck the system, which had finally gotten a lot of the kinks out of it, and make sure that the thing's done Dutch. I know the bonds are used to Dutch auctions, but the unsophisticated public sure isn't. Start the Dutch revolution without me.

Second, you set the price at a level that is the most forbidding to the most people: north of $100. What the heck does that prove? That you intend to be the next Berkshire Hathaway?

Third, you talk about shareholder democracy but then you do the single most anti-democratic thing possible: issue two classes of stock.

Fourth, you wait until the dog days of summer to do the deal when no one's around anyway.

Fifth, you show total contempt for all of the institutions that, like it or not, represent most of the buyers out there, especially now that you price the deal at $100 a share.

Look, I know the process from 1998-2000 was deeply flawed. There was spinning going on, and friends and family and lots of laddering and all sorts of evil that since has been erased or silenced. The main flaw with the system, though, was that you couldn't reset demand on the fly to make it so that there was some sort of elasticity when buyers came in. The underwriters always blamed the SEC for that. If that was the real problem, let's deal with it. But this deal, I mean, can you say fiasco?

In six months, Google's gone from a company everyone wants a share of to perhaps the single-most scorned entity I can recall. Right out of the chute! Amazing.

I repeat: What a fiasco! What a blown opportunity. What a shot-in-the-foot moronic way to go about ruining what could have been a definite shot in the arm for this horrid market.

There. Now I feel better.

Monday, June 20, 2005

Stocks R Us

In one of my rare moments of sound on CNBC today, I was rewarded with an extended discussion about how to buy real estate in Spain. No kidding. This is what the US equity market and it's chief media exponent has come to, buying real estate in Spain. Note to Bob Prechter, this is NOT a top.

Bob Prechter for those who are too young to remember the markets of the 80s and 90s, is a market analyst turned social scientist who was mainly responsible for the popularization of the Elliott Wave Theory of technical analysis, a pattern recognition technique that has the remarkable attribute of never being wrong, because there always is an "alternate count" that amazingly and exactly correlates with the market's twists and turns......In retrospect. Prechter became famous being a bull in the eighties and a bear ever since. Or a bear ever since he recommended to his subscribers to, "Go Long" on the Friday before the crash of October 19, 1987. But enough of that, other then I was a faithful subscriber of Prechter's, circa 1984 through 1988.

So what I am trying to reconcile here is where the US stock market is headed, when the dominant stock TV coverage is obsessed with real estate in Spain, and Las Vegas, and Miami and Omaha. Where once commercial time on CNBC was filled with truck drivers striking it rich on Silicon Valley IPO's, now we are entertained with cute ads touting on-line poker. When it served his dire paradigm, Prechter labeled such cultural trends as indicative of a change from bull to bear markets. If there is a scentila prescience in such insights, based on what our talking suits and low cut blouses are filling the airwaves with these days, back up the truck, we're going to have one heck of a summer rally. You see once the real estate boom becomes fodder for banality, the flow of financial speculation will once again turn to our time honored American tradition of Google and Company.

Just in case though, a Spanish dictionary may not be a bad idea.

Friday, June 17, 2005

Safeguard Scientifics - SFE

An interesting Insider Buy this week is Safeguard Scientifics. I purchased SFE following the first of multiple SEC filings, starting on June 15th. My original cost basis on Wednesday was $1.10. Today, Friday, SFE has traded as high as $1.33. Apart from the over 20% gain in three days is the fact that there were eight separate Insider Buy filings this week, including the CEO and three other Officers as well as four Directors.

Also of interest is that SFE is trading at a discount of 98.7% from it's all time high of just over 100 in March of 2000. I actually owned this stock in the bubble but have no recollection of how it turned out. Which probably explains how it turned out.

In any case, just consider this a heads up, chart looks bullish and with multiple insider buys, it's probably worth putting on a radar screen.

Thursday, June 16, 2005

Curb Your Enthusiasm

Coming out of box this morning, I had eight system trades on my new beta pivot point system, seven of which were winners against one loss. Then the market got boring, not a single system trade to be found, so I entered and exited five non-system trades, "just cuz." After thirteen total trades, I'm up $2.00. Yes, two dollars. So let's make a rule:

When the market gets boring, stay away from the damn keyboard. Or if you must, post a damn blog.

As you can tell, I'm in a damn mood now.

Defense, Defense, Defense!


Tuesday, June 14, 2005

Something New

Despite my success daytrading over the past couple of years, using an arsenal of highly effective trade triggers, I have been looking for something new, something that will work as effectively in down markets as my other stuff works in up or sideways markets. I may have hit the jackpot.

My new "beta system" uses a proprietary equation that determines buy and sell levels based on the previous day's range and closing prices. There are numerous "pivot point" systems out there, but this one is the only one that has ever intrigued me enough to carry it into "beta" mode. What beta means to me is that the underlying technique has passed all my backtesting criteria and has reached the real time, real money, test mode. This is the final stage before becoming an official module for my daytrading system. I have to make money with it, consistently, before it becomes an offical daytrade system trigger.

So I thought it might be of interest to chronicle it's progress here on my blog. I'm monitoring about 20 stocks and being very selective so far in where and when I throw real money into the ring. In any event, all trades are recorded into a spreadsheet, whether I take them or not. Once this technique graduates, if it does, to an offical part of my trading system, all trades are taken, no questions asked.

One of today's trades, taken real time, real money, was TZOO. The trigger was a move above $31.80. I bought TZOO at $31.84 and exited with a decent profit at $32.20. TZOO then ran up to $34.14.

I guess you can say, "So far, so good." Or on the other hand, ask, "What were you thinking, Allan, taking the trade off with a paltry 1% profit?"

That's why we beta, something new.


Sunday, June 12, 2005


In the nineties, my approach to stocks was to position trade, find a stock that exhibited certain trading patterns and follow those patterns into and out of the stock. I used Advanced GET as my main tool for uncovering entries and exits, seeking 25% returns within three months or so. Due to the exuberance of that bull market, I was successful. When that exuberance waned, so did my success.

As described on my profile on the right of this page, since the middle of 2003 I have become a day-trader. Instead of looking for 25% gains over three months, I am looking for 1-2% gains over a few minutes to hours. Whereas before I was buying stocks in a bull market, now I am truly trading the market. It's a whole different ballgame, this trading business. I'm taking ten to twenty trades a day, looking for a few hundred dollars per trade, adding it all up at the end of each day and pasting the results into a spreadsheet. It's like a real business.

But maybe of more interest to my readers is the concept of reaching for 1-2% per trade, instead of finding some buy and hold gorilla, that one decision stock that makes us all geniuses. There are a number of different techniques for generating that 1-2% return in short time frames. I've discussed one of them right here in this blog, the insider-Buys, getting in quickly just as the news of a major I-Buy is being spread across the news channels and Internet, then getting out as the underlying stock pops in the hours and sometimes days after the announcement.

My other techniques are closely held secrets....For now. You can imagine the havoc I would put my trading into if suddenly I shared all my secrets openly on this blog. I'm getting over a hundred hits a day here, more when I write something halfway decent. The last thing I want is for a thousand other traders trying to jump into my day-trades with me.

But my point here is that it is has been a lot easier finding those 1-2% movers then it is finding consistent position trades in this market. On a $20 stock, 1% is twenty cents, 2% is forty cents, that's all it takes. They are out there, I assure you, I started this day-trading with one technique, one that still works, everyday, Now I have three solid systems, all working independent of each other to generate a steady stream of 1-2% winners, all intra-day. Yes, there are losers, but not like there is in position trades, where an overnight downgrade generates 30% haircuts on your favorite stocks. When you are only in a stock for a hour or less, there isn't much in the way of disasters to worry about.

It's a new way of looking at the markets and trading, it's not for everyone, but for this trader, it has been a life-saver. You wouldn't want me to become a lawyer again, now would you?


Tuesday, June 07, 2005

Google and Apple

In trying to make this blog worth your while, I don't want to just post for the sake of posting, but instead am going for quality over quantity. Still, some observations are worth making, even if short and sweet.


I was asked on the Gilder Technology Forum if I thought Google was a candidate for profit taking after the recent incredible run. Not a chance. Again, I refer you to the very well written and researched blogs of David Gordon on Google, as well as my own instinct that this is a grand slam home run, over years, and we are only now at beginning of the Google story.


Apple made news yesterday announcing it was moving to Intel processors. I look at this news a hugely bullish, long term, for Apple, as it will now port it's operating system to a superior processor, opening a lot of doors. I am not as sure shorter-term what effect this may have on operating numbers as Mac owners like me will probably postpone any new purchases until the new Intel machines are out. Once that happens, Apple starts selling it's computers, especially notebooks, like hotcakes. The market should reflect this new Apple business model and it's effect on Apple's bottom line in advance, by about 6 months to a year. I will be investing in Apple accordingly.

Thursday, June 02, 2005

The Bullish Case, Revisited

Early in the life of this blog, I mentioned the macro-economic views of Harry Dent. In a nutshell (no pun intended), Dent considers the market in the mid stages of a "Bubble Boom" in which the surge of the late Nineties in the equity markets was only the first leg of this bubble. The second leg, according to Dent, is upon us now, due to assert itself and make it all friggin' obvious to us market players at any moment.

Yesterday I received an update from Dent, reaffirming his analysis and suggesting that the friggin' obvious part will make itself known between late/June-early/July and October of this year.

As for Real Estate, Dent suggests that the pending explosion in equity prices will end the Real Estate Boom as money from real estate will flow back into the stock market. Dent expects Fed tightening to be coming to a close and that oil has seen it's highs for at least a year or so.

It's hard to use this kind of trend analysis in trading, maybe even in investing, but I am revisitng it here in case Dent's scenario seems to be coming together later this summer or fall. If so, maybe we can start taking it more seriously.