2012 – the long term view

There are several tasks that I am finishing up on this weekend in closing out the 2011 year for my trading efforts. Part of this process includes a thorough review of each remaining trade that I am taking with me into 2012, as well as a review of trades that I want to begin building again right out of the gate.

For the purpose of this post, I want to focus on the remaining trades that have a more long-term view (more than 2 months). To further refine this list, here are my short positions in the long-term account going in to 2012:

$GRPN (Groupon Inc.)

$ANGI (Angie’s List Inc.)

$SHLD (Sears Holdings Corp.)

$LNKD (LinkedIn Corp.)

For the Options account, I have closed out the short ETF pairs trades for 2011 and will be putting those on again for 2012. These 2 trades are done each year and have a long-term view.

I will add here that I have one trade within my Swing account that could qualify here in that I have held it longer than 2 months – $VXX January 50 Put that was part of a Bearish Risk Reversal trade that I put on in early October 2011. However, I do look to close this out soon as we move closer to expiration.

 

The Trade Setup

Changed my mind. This is a Thank You post.

There are a great deal of smart, solid traders that I had the pleasure of following in 2011 and just want to first say thank you for what you share – and thank you for your insights. One of the inspiring things to me is to have access to the vast array of knowledge shared on my twitter stream – many whom don’t truly realize the value of their words or information.

I am thankful for my “Stream Team” (h/t @gtlackey) and look forward to 2012. I crave knowledge and don’t mind admitting that one of my goals in life is to surround myself with smarter people.

I hope that each of you have a safe New Year weekend – and I’ll see you in 2012.

Probably

I received a great question this week from a follower that was doing a review of their 2011 work – and had noted an area that they wanted to focus on more for 2012: Improving their trade entry by looking for higher probability trades.

What a great idea I thought, we should all have this as a goal each year for our trading. So how do you go about doing this? What can be done to improve the probability of success in your trade performance?

My first suggestion was to take a very simple approach: since they had already determined that the probability of success was an issue too often, take the Top 20 worst trades – dissect them and focus on what led to their poor performance and use that as a guide for future setups.

Is it a Moving Average support bounce plays? Did you wait for confirmation or try to be anticipatory?

Is there a Trend Line in the vicinity? Has it held before? Time since last test?

Where are the various Support and Resistance targets?

Do you know the stock well fundamentally or is it just a technical chart call?

I am sure you can come up with many other questions in a review but certainly this process should lead to better entries in the future. And oh, don’t forget about improving Patience – that will be on everyone’s list.

:)

 

2011 – the year in review

Some comments from my public stock & option trading journal review for 2011:

1) 328 trades total in all 4 accounts that I run (day trade, swing, long-term, and options)

2) Clearly a defined trend as there was a noticeable shift to more activity in the day trade account – toward that later part of the year. Hope to get back to more swing trading in 2012.

3) Was increasingly harder to hold positions in the long-term account. This account is over 50% cash to end the year with only 5 positions (3 long and 2 short).

4) Large increase in Risk Reversal option trades over prior years.

5) Focus on using tighter stops in most situations allowed for retaining a larger % of the gains (but also contributes to the increase in the number of trades as I often would re-enter on pullbacks).

6) Continue to hone the U-turn trade strategy but admittedly have a great deal more work to do in this area.

7) Introduction of a few simple trading methods using just RSI or Accumulation/Distribution on the 5 minute chart have greatly improved the entry and exits of trades.

8) A determined effort to increase the theme and pairs trade setups. I expect to further expand this in 2012.

9) A noticeable increase in short positions taken versus prior years.

Thanks for reading

 

The ETF trade starring TNA & TZA – update

 

The above trade setup is one I do each year for this pair (I do this with FAS / FAZ as well). You can stick to the basic setup above, or mix in a variety of additional trading events (re-balance in June for example). The premise here is that you will achieve some return based on the decay of the ETF due to its structure.

As for the performance of this trade, you can see above that in 2010 you would have experienced a loss on the short of TNA for that year – but the net return on the short pair is still significant. The net return in 2011 for the pair looks to be really solid with just 4 trading days left. These returns do not account for margin use (if applicable based on your actual trade implementation). I use solely option trades for this, and utilize Weekly options along the way to enhance the trades.

  • TNA is the Direxion Small Cap Bull 3x
  • TZA is the Direxion Small Cap Bear 3x

Look Both Ways – the series

I have been reviewing my Trading Journal for the month of December and several interesting opportunities present themselves for a LBW (Look Both  Ways) trade setup. My initial post on the LBW strategy focused on the use of a Strangle options trade. For this post, I will lay out a Straddle buy (in the current options month) that is financed with a Put sale (in an out month).

Let’s get to the setup. The candidate for this trade setup is DMND (Diamond Foods). Here is a current Daily chart:

As you can see above, the stock has been on a severe decline since the Doji on 9/21/2011. The recent price action as been more of a bottoming process while investors digest the issue surrounding the company and its payment to Walnut growers (the SEC now has a formal investigation into the matter).

So what is the real opportunity here? The premise behind the LBW strategy is that “A” move is coming but it is not easy to determine what “THE” move is going to be. That being the case, I take the approach that I want to have a bet on both sides – I want to Look Both Ways.

Here is the trade:

1) Sell the March 2012 30 strike PUT for 6.80 (current OI is 658)

2) Buy the Jan 2012 30 strike Straddle (CALL & PUT) for 5.80 (current OI is 3086 combined)

The result is a net credit of 1.00

Here are the exit scenarios:

1) The stock price goes up thus allowing you to take advantage with the Jan 30 Call ownership (sell for value or excercise to obtain the underlying stock). The Put side of the trade will lose value for both the sold & owned put. After January expiration, you will be short the Mar Put and can determine course of action.

2) The stock prices goes down thus allowing you to take advantage with the Jan 30 Put ownership. The Call side of the trade will lose value as you get closer to expiration on Jan 20. If the Jan 30 strike Put remains in the money on Jan 20 then you would want to exercise the option to cover the short Mar 30 Put. You keep the 1.00 credit and any value obtained from selling the Jan 30 call (if any).

Fab 5 – update

Just a brief update on where these stocks stand (will do a final update over the weekend).

The prices are current as of today trading and it appears that MCD (McDonalds) has a great shot at achieving the 100 Roll today. I am currently assessing available candidates for the recently vacated V (Visa) spot – now that it has achieved the 100 Roll.

The fact that V was removed does not mean that I do not like its prospects going forward. This was simply a trade approach for the 100 Roll – and that event has been achieved.

The Doji Festival

One of the common candlestick patterns that Dip Buyers look for is the Hammer. Although there are some wide varying definitions for what this looks like, here are some common examples:

Certainly a powerful buy entry point to look for, but one that needs confirmation from the candle that follows (based on selected timeframe). Another candlestick pattern that falls inline with the Hammer is the Doji. Here is the minor way in which it differs:

One way to really enhance this pattern is to find 2 consecutive days with this Doji pattern. One such chart I reviewed this morning has it:

This Daily chart of FL (Foot Locker) shows 2 Dojis formed on the 50 day simple moving average. If no position, look for a continued hold above this moving average and enter according to your trade profile & system.

Trade ‘em well.