Sunday, July 31, 2005

Sunday ramblings

I'm out of town until tomorrow night, so I don't have access to my software to post a new watch list. I'll try to get the latest watch list up here late tomorrow night. Makes me wish I had the website done because then we'd all have access from anywhere.

I noticed that oil has been mentioned far less in the media lately, it's almost like it has been forgotten. Times like this are perfect for swooping in and taking some cheap shares off of people who bought too high and are underwater. I know that the low hanging fruit has already been picked from the oil tree, but if the down-side risk is low enough on a consolidating stock its hard to argue with buying some, and if you're wrong about support just close it out.

I can tell Bill Cara is getting back into his game. I get so excited about being a trader when I read great stuff like this passage from his weekly review posted yesterday:


  • I truly believe that electronic capital markets are becoming the nexus for what I call The Trading Wars, i.e., my computers against yours, except that “me” and “you” happens to be Humungous Bank & Broker and colleagues.

    The goals in this game are measured in billions, if not trillions.

    But, I’m not so sure that the independent directors on the Boards of these mega corporations really understand what’s at stake, and they ought to. This is not PlayStation.

    How long will it be before U.S. politicians take their focus off Beijing-controlled CNOOC’s traders trading in shares of Unocal (NYSE: UCL) and start to worry about other Beijing-employed traders gobbling up the pension plans of hard-working Americans by out-smarting them (and their agents) in the capital markets?

    I tell you, as sure as my name is Bill Cara, this dilemma is going to surface.

    You see, China is graduating significantly greater numbers of engineers and mathematicians annually, and they are paying them some US$500 monthly. Backed up by USD reserves of some three-quarters of a trillion Dollars, the Beijing authorities have the deepest pockets, and the best pool of human players, in the game.

    If you have heard the expression, “never play poker with someone who has deeper pockets and more skill than you” – at least for real money – then you might understand the point, which is that, in some games, you can’t win. Strategy is not enough; you get tactically over-run by the opponent's resources.

    I am starting to question whether America can win at The Trading Wars; and, the first major battle, if you will, will likely be in the bond market.

Thursday, July 28, 2005

XOM cup & handle


I almost went to bed without posting tonight when I saw Stephen Vita had featured XOM's chart tonight. You can't ask for cleaner setups than this bullish cup and handle on XOM's chart. I'm long other energy stocks right now, ABLE and GEOI (bought GEOI today near 50-day SMA) and its no wonder they were setting up: the mother of all energy stocks is set to run. I guess I can stop looking for bull-killing catalysts.

Wednesday, July 27, 2005

QQQQ's to $41? O. K. I'll carry some longs


Covered all my QQQQ's today at a loss. After clearing the recent high, it looks like they're headed to the top of the upper-channel line near $41 I wrote about earlier this month here. So I don't mind having some longs for a few days. I bought ABLE off of its 50-day moving average, and VLFG on its first pullback.

I wonder if any readers got in VLFG? I'm not in the recommendation business, but I like to think that my commentary is generally quite timely. VLFG was up 18% today after I discussed it last night. The rally early in the morning carried VLFG over its upper-channel line on heavy volume. I bought the first major intra-day pullback above the upper-channel line near $4.84. Like I said last night, if I bought right, it would close over $5 the same day. VLFG closed right on today's high @ $5.15 =) Its too bad VLFG didn't quite fall enough for me to risk getting in before the breakout, but you can see on the chart it could have fallen over 5% and still be within the contracting range. I need more of a safety net than that if I'm going to try to pick a bottom.

Five interesting charts for 7-27-05

My homework software came up with these five symbols tonight. I thought they looked compelling enough to follow over the next few days. There is definetely a commodities theme, so this doesn't necessarily conflict with my bearish stance right now.

ABLE

ANTP

BOOM

CAAS

VLFG

VLFG is not marginable (less than $5), so normally I wouldn't bother with it, but my guess is if I buy it right it will become marginable that same day (close above $5). If buy it and I'm wrong, I'll just close out the position before the market closes. I'd also like to point out how similar VLFG's chart looks to XWG near $6 at the beginning of this month before its huge runup. I posted XWG's chart right before its recent >100% run-up, so you can compare the charts for yourself. I also took a position in XWG shortly after that post =)

GIGM triple-cup base analysis


A reader asked me about GIGM, so here is a post-move analysis using my triple-cup technique.

All of the trades on the chart could be identified without the benefit of hindsight using price and volume movement as a guide. Similar gains would have been captured whether you chose to use the 10 or 20 day SMA for buy-point 3 and closing out the position. Buy point 3 was sooner when the 10-day SMA is used, but the selling point was also sooner. It doesn't matter which one you choose, so use volume during the pullback as a guide.

Another thing I like about this chart is that it shows a failed triple-cup base a few months prior. When the triple-cup base fails, your loss is small because you've only committed to 1/3 of your full position. I never use more than 1/20 of my buying power on any one buy point, so even if the position gets blow away at any point while I'm in it, my equity isn't damaged much.

Tuesday, July 26, 2005

Lessons from The Prince

I've been reading Machiavelli's The Prince while I sit on a large cash position and accumulate QQQQ shorts at the best prices I can. I found a website that has the entire text available for free here. In chapter 7 there is a passage that is quite relevant to speculators in modern times:


  • States that rise unexpectedly, then, like all other things in nature which are born and grow rapidly, cannot have their foundations and relations with other states fixed in such a way that the first storm will not overthrow them; unless, as is said, those who unexpectedly become princes are men of so much ability that they know they have to be prepared at once to hold that which fortune has thrown into their laps, and that those foundations, which others have laid before they became princes, they must lay afterwards.


I'm no history buff, I don't have the memory for it. But I learned early on to seek out and emulate people with the skills and abilities I wished to acquire. This meant paying attention to both the successes and failures from each technique I could identify and put into use, so the experience that history provides is crucial. I never remember the history, just the lesson. Machiavelli wrote in chapter 6:


  • Let no one be surprised if, in speaking of entirely new principalities as I shall do, I adduce the highest examples both of prince and of state; because men, walking almost always in paths beaten by others, and following by imitation their deeds, are yet unable to keep entirely to the ways of others or attain to the power of those they imitate. A wise man ought always to follow the paths beaten by great men, and to imitate those who have been supreme, so that if his ability does not equal theirs, at least it will savour of it.


While The Prince is most known for its cold-blooded tactics, none of us today would have heard of it if it wasn't so self-conscious, strategically calculated, and full of critical insight. You don't need to have cold blood to be a prince in modern America (thank goodness), but you do need ambition, wits, and a little audacity; all of which The Prince delivers.

Monday, July 25, 2005

A book: The Perfect Stock

Since I'm not doing much trading right now except for getting the best prices I can short-selling QQQQ's and unloading the rest of my longs, I decided to try to find out who the largest fund was holding TASR at its 2004 top as a starting point for further research. I remembered reading an article in April 2004 that the reason TASR plunged on its third split was because the largest fund shareholder was disposing of almost all of its TASR holdings, much of which had been owned since TASR was pre-split $10. I couldn't find that article, but I found something better: a book I had never heard of, The Perfect Stock: How a 7000% move was set-up, started and finished in an astonishing 52 weeks.

From what I can tell by the excerpts on the website, the book is a modern version of Reminiscences of a Stock Operator, written in the same timeless style and teaching the same timeless lessons. But this time we get the benefit of a subject that many of us are intimately familiar: TASR. I've got TASR's chart seared on my brain so naturally I had to order a copy of the book. After I've read it I'll do a review for the blog. Until then, I'll leave you with a few passages from the excerpts page:



  • Boyd offered me black coffee and Hennessy X.O. We parked ourselves poolside. He began, "Why the sudden interest now in stocks? The market seems to be topping around here at least for the intermediate term. You should be looking to go fishing now. Not to buy stocks. And more importantly your interest in Taser is surprising since I am now looking to get out of Taser shortly."

    "I am doing some background work on Taser for a large client. It is now headline news. There is talk about stellar earnings report coming out next Tuesday. I thought I could pick your brains about the stock," I offered. "Obviously Boyd, everything about you will be kept out of the report. You know that." I confirmed to him what he knew about me. I never betrayed confidences. And Boyd, who was a stickler for anonymity, appreciated this more than most.


  • "The public has no idea of probabilities. They only believe in the possibilities. It is possible one could become an instant multimillionaire at a casino. It has been known to happen once in a while. It is possible that one can land a true winner in the stock market and make millions. It has been known to happen sometimes. It is possible that folks can win multimillion dollar lottery jackpots. It has happened a few times before. But just because something has happened before does not mean that it is probable. It certainly is possible. But how many of us sit down to think about the probabilities? The only consistent winner in the stock market is the one who places his commitments based on probabilities and not on possibilities."


  • "There is only one way to get the public excited in buying a stock. That is by showing rising prices. One only looks to buy a stock whose price is rising. Nobody wants to buy a stock whose price is falling. There is only one way to prove that a stock‘s price is rising. The stock does that by plotting a series of higher price highs and higher price lows. If a stock makes new higher price high than a prior price high and then at price reactions makes a higher price low than a prior low, it shows the tendency to rise. There is no better way to market a stock than setting it on a course of such an uptrend. Suddenly there is interest within the public to buy such a 'winner.'"


  • "There is only one way to beat the market. That is to learn the lessons of the market oneself and try to recognize the lessons offered by masters of yester years. The old masters who have long gone do, through their writings and experiences, confirm the lessons we ourselves will learn in the markets. Those who claim to be successful in today’s markets but will never caution us against the pitfalls are more likely than not doing injustice to their readers."

Sunday, July 24, 2005

Watch list for 7-25-05

Highlights from the results of my market homework software this weekend:

ANTP
FORD
GOAM
PACT
AIRT
IRIS
MDRX
ENN
DSTI

These stocks are all pulling back and are likely to offer low-risk entry points at some point over the next week. I'll probably keep posting these lists on the blog each weekend until I finish integrating the software into a website and people will be able to easily make their own custom lists like the one above each night. Unfortunately I won't be finished with the site for at least a few more months, but it will be worth the wait.

Last weekend's watch list had 2 huge winners, SPIR and DXPE, both of which were up over 75% from Monday's open at some point. I caught the entire move in SPIR with a 2 lot position =) None from last week's list were down more than a few percent.


P.S.
I wanted to add that the list is short this week for a good reason. Not too many stocks are in pullback mode right now with the market bid up quite a bit lately. I probably won't be doing much buying while the nasdaq is so close to this upper-channel line.

Friday, July 22, 2005

Intra-day take on GOOG

As I type this, GOOG is trading right near its 20-day SMA at $299.05. This is both a buying opportunity and a selling opportunity. Let me explain. GOOG has not closed below its 20-day MA since March since the market bottomed this year. Guys like me trail stops under the 20-day SMA for slow trenders like GOOG, so when it's trading right on the line you can make a low-risk bet either way. Today's close will be interesting. I'll probably make a trade based on where GOOG is priced in relation to its 20-day SMA within 30 minutes of the close if it looks at all decisive.

Michael Taylor on scaling into trades

Michael Taylor makes the case that scaling into trades is usually less than optimal. I've been doing a lot of scaling into trades lately, so Michael's advice is very timely for me. I think part of the reason why I was doing so much scaled buying a few weeks ago is because I looked at the indexes, GOOG, and the housing stocks and I knew they weren't ready to come down at that time. Anyway, I've got to reconsider whether or not I could do better than scaling.

In volatility-based position sizing, the more volatile the issue, the smaller you want your position to be. The amount of capital you risk on a trade is based on the historic volatility of the issue. I've been illustrating 3 buy-points on the triple-cup base in many charts lately. Part of the reason I like using 3 buy points is that I see it as an alternative form of volatility based-position sizing. Rather than basing position size solely on the historic price volatility, the 3 buy-points base position size on the stock's potential drawdown while still remaining healthy at any given point in time during an advance.

The first buy point on the triple-cup base charts I've recently posted, I'm actually trying to pick a bottom. For this reason, I feel it is appropriate to have a smaller position because I need to be able to withstand some price volatility to find out if I'm right about the bottom or not. New lows and I'm gone.

The second buy-point is the break-out buy. This buy-point is usually where the most volatility occurs, so I don't think it's the best idea to put your whole position on at this point or you may get thrown out of what would otherwise be a good trade because you had too much capital at risk.

The third buy-point is actually right above my stop under a supporting MA. The shares in the third buy risk the least amount of capital loss, but also have the least potential reward. Because the entire position is at its lowest risk at this third buy-point, I feel it is best to have the position be at its maximum size.

So I guess I sort of felt like the 3 buy-points enforce a dynamic version of the volatility-based position sizing technique based on the risk of the position at any given point. In time I'll know if I can do better, but it really helps to have people like Michael casting a critical eye on things that deserve scrutiny.

Wednesday, July 20, 2005

My strategy for DSTI this week


DSTI is by far my biggest position right now, the only other thing close after my selling today is sort of a defensive stock, UPCS. I've averaged up into DSTI twice since my original buy @ ~$12.90 on the first major pullback since the June breakout. That lower-channel line is how I'm going to play it too. I'll be very suprised if it doesn't break up or down big tomorrow. Obviously I'm positioned for an up move and I'll probably dump at least 2 lots if it starts breaking down on volume, but even if it breaks out to the up-side I'm going to be scaling back the position after a couple days.

Weekly naz chart just under resistance


As I mentioned earlier, I'm peeling off the longs into this rally. It should be pretty obvious why after looking at this weekly chart of the nasdaq. It is likely that a lot of other traders will also be selling at resistance on the naz near 2,225, but I'm sure CNBC will have the confetti coming down and the balloons going up and IBD will probably be getting all in a bunch over the "break-out" to new highs. At least thats how I remember it every other time over the last year and a half.

Anyway, my plan is to play the range drawn on the naz chart until it breaks one way or the other, then I'll do some real trend following, and my guess is it'll be on the down-side of the rising wedge that is forming.

Regular analysis of the major averages is one of the easiest and most important homework items I do, thats why I make posts like this periodically. I think my track record on market direction here at the blog is pretty good too, but today my friend Chris correctly pointed out that I'm usually pretty paranoid. I guess its because I'm still pretty scared of the potential volatility and gapping behavior in the kinds of stocks I prefer to trade.

Michael Taylor's trade automation research

I wanted to post a link to Michael Taylor's trade automation research because when I finish the trading homework website I'm working on, I may do some work with automated trading. Michael's research will be a good reference to have on hand.

Using this rally to trim down

One of my mentors Piranha has posted a timely analysis of one of the latest stocks in play, XWG. You can find his post here.

This morning I trimmed my position in XWG from 2 lots down to 1 because the volume is not big enough to make me think it can have a sustainable breakout. When I see XWG sitting dead in the water, up 5 to 7% at the open on 9,000 shares traded, I know the train's not leaving the station yet. I've mentioned somewhere in the comments on this blog that my best guess at what XWG will do is consolidate under the old 52 week high for a week or two before breaking out above it. I'm guessing it'll see a 10 to 20% decline from today's close at $8.94 before it sees a new 52 week high. Fortunately, this would be the best case scenario because it should be able to run up quite a ways from a good handle. A breakout now is probably immature, more risky to sit through, and won't carry as far.

By taking some profits now I've positioned myself to be a buyer near the low of the handle and again at the breakout rather than getting stopped out where I should have been buying because I'm carrying a loss. And if I'm wrong and it does breakout here, I can always buy more at the right time. Jarod and I go back and forth on the phone all the time about whether blind trend-following or tape-reading is better. I'm more in the blind trend-following camp, but its tough to argue with Jarod when he says great things like, "if you know its going to get cheaper, then why not just sell?" And he's right. There are times when it is pretty clear things are going to get cheaper even when trend-following doesn't say sell yet.

I also trimmed down positions in SPIR and CTTY this morning for two reasons. These stocks were getting overheated, meaning I think without a doubt they will see cheaper prices than where I sold this morning at some point in the near future. And I also think the whole market is likely to pull back after testing highs that go back for years. These past couple weeks have been such a gift to me, I don't want to squander away my gains. Even people need to consolidate and digest gains every now and then. Especially "average up" people.

A good ad

Frank just sent me this great snapshot of Cramer with his hand in the cookie jar. Nice catch Frank!

Tuesday, July 19, 2005

Those dirty gamblers!

I was next in line at the haircut shop yesterday when a stylist and customer come up to the front. The customer is telling the stylist about roth ira's and that you can start one with as little money as you want. So naturally I asked the guy if he was into investing, and he goes, "Yeah I manage the alumni fund for !@#$", some fraternity crap I can't remember. So I told the guy I was into trading and told him I made a little money that day on some solar cell plays. The look on this guy's face was grim. On his way to the door he looked at me how you look at the enemy and said, "You mean you're a gambler." I put on the biggest shit-eating grin he's probably ever seen because I could tell he wasn't up for a conversation and said, "Yeah!" The whole shop was laughing at this point. "What did you do with the money?" he responded. I knew he was trying to figure out if I was a daytrader, which I'm not. "I'm still carrying the positions. I'll sell 'em near a top."

I figured out why that guy was pissed, and he was right. I came along behind him and un-did all his fine work from the last 15 minutes. When I tried to explain to the stylists what I really did and that the investor guy was as big a gambler as I was, they didn't care. But when I talked about all the money I made in the market, they paid all the attention you would give a beaming casino boat after a few cold ones around midnight. They were ready to gamble, and who was I to take their hopes away? I guess thats something else people like me do. We sell hope. All we're after is the money, the public can have the hope.

Monday, July 18, 2005

XWG cup & handle pattern may resolve soon

The Knight Trader has recently posted XWG's chart illustrating a possible cup & handle on the daily candlesticks. That pattern looks like it may resolve to the upside over the next couple of days. I'm already carrying a 2-lot position in XWG, I started my buying pretty close to the bottom of the cup when the descending upper-channel line broke.

If buyers get into a panic causing a breakout over its new upper-channel line (across the top of the cup) and into new 52-week highs, I'll probably add to the position again. Averaging up is a double-edged sword, it may cost me a lot of my current gains if the stock falls apart, but if I'm right about it moving up then I stand to make far more money.

Watch list for 7-18-05

Here's the highlights from my market homework software's screenings tonite:

AIRT
ANTP
CAAS
FORD
GOAM
PACT
TZOO
DXPE
FLOW
SPIR

Not a whole lot of compelling buy candidates this week but that could change as the week progresses. Some of these symbols are repeats from last week's watch list. This is because they are still basing, so I anticipate low-risk buy opportunities this week.

Sunday, July 17, 2005

Triple-cup base analysis: TZIX


Triple-cup base analysis: TZIX

Friday, July 15, 2005

Bill Cara is back baby!

I can't get enough of this guy. If you haven't read his latest post then you should. He mentions at the bottom of his post that he's probably going to do his weekend review of the markets again after a tragic family related hiatus, so check www.billcara.com sometime later this weekend for his comprehensive market analysis. I never miss it.

JDSU triple-cup base


This JDSU triple-cup base technical analysis is dedicated to my college bro Norris aka Hogan. If you've been following my previous triple-cup analysis chart studies then you'll know there is one more easy buy-point in the near future for this stock that looks like it has put in a bottom. If you get the sweet buy point, then you could make a lot of money by letting it ride until the 10 or 20 day moving averages stop you out.

Thursday, July 14, 2005

Triple-cup base analysis: LIFC


Continuing with my analysis series on triple cup bases, here is a doozy: LIFC. I watched this one set up and break out without doing anything. It would have been nice to be in this stock, but it will base again and I'll re-evaluate it as a buy candidate at that time.

A compelling buy candidate: IRIS


IRIS looks like one of the most compelling buy candidates to me tonite. I'm not going to take my whole position until the upper-channel line is broken, but I will probably try to start buying at the 50-day if I can get it. The reason it is dangerous to take my whole position while it is still under the upper-channel line is because theres a good chance IRIS may continue to drift down, forming another cup shaped consolidation. Another buy opportunity would be the first pullback to a key moving average after a strong-volume breakout.

Tuesday, July 12, 2005

Analysis of a triple cup base in ARRS


ARRS formed a triple cup base earlier this year. I wanted to post this chart analysis as a follow-up to my triple-cup analysis of FLOW from yesterday. I'll probably do a couple more triple-cup base charts this week but I did ARRS first because it fits the profile so perfectly. I have a position in ARRS, but I didn't buy in until the 3rd buy-point. So yea, I'm sitting on a substantial gain in ARRS right now =)

Chart analysis of one from yesterday's watch list: FLOW


This chart illustrates a triple-cup base in FLOW from last year, and a possible triple-cup base forming again. I've drawn the most bullish scenario for the next month or two in FLOW.

I like to try to buy a small position in the bottom of the 3rd cup, and add to it when it breaks out over the upper-channel line. Obviously if my first buy in the 3rd cup undercuts a prior low in the base I'll dump my position. If it doesn't make a 3rd cup and instead breaks out, I'll buy a small position above the upper-channel line and add on the first pull-back if the volume pattern is bullish.

Monday, July 11, 2005

Watch list for 7-11-05

The market homework software I mentioned Saturday tells me which stocks out of a custom stock index that I've told it to watch are currently basing or pulling back to buy zones. Of course when I'm done with the software it will maintain an up-to-date index of hot stocks on its own. I'm not quite that far along yet though ;-) But I am far enough along that I've solved the problem of only finding out about a great buying opportunity after it has already came and went. I've also provided myself a convenient "1-click to see the chart" feature for me to quickly view the charts of all the buy candidates given by the software.

So anyway, here are the more interesting stock symbols that the software gave me to look at for Monday:

IRIS
FLOW
TALX
XWG
PRGS
TRI
UPCS
GOAM
ANTP
AIRT
BOOM
INCX

Saturday, July 09, 2005

"Everyone gets what they want out of the market." --Ed Seykota

I never liked working, which goes a long way towards explaining my natural attraction to trading debt. But I'm also a big fan of automating work when I can directly reap the benefits. This is why I am also a programmer. I used to write computer programs to do my math homework for me in high school and college. I can't stand grinding repetitiously when there's no good reason for it.

Some very successful people like grinding, and it works for them. Take a look at this post by Brandon Fredrickson. He admits grinding over 80 hours a week, pouring over financial information and charts. When you read interviews with Dan Zanger, you find he is the same way.

I can't help thinking there is something important hidden just beneath the surface here. Ed Seykota said something pretty near the mark in his interview in Jack Schwager's "Market Wizards" book, "Everyone gets what they want out of the market." Some people like analysis for the sake of analysis, and similarly people feel like they don't deserve wins if they didn't grind for it. I don't feel these things at all, which is why I'm taking steps to reduce the time it takes me every night to get the same amount of useful information about the market for the next trading day. I've written a software prototype that I've been using for a couple of months to make my watch list each night. Among other things, it has elements of a screener, but like none I've ever seen. Since I've written this software, my homework time has been reduced down to about 45 minutes a night to learn what used to take me 2 or 3 hours. When I'm done, I hope to have it down to 20-30 minutes. Anyone who's read this blog over the last two months has seen watch lists and stock ideas that came from my software, although this is the first time the software has been mentioned on the blog.

Anyone else who is in the markets to take debt from other people and make it their own as cheaply as possible should stay tuned to this blog because I am in the process of converting my trading homework software prototype into a customizable website so that others can reap the benefits that I already am. In a sense I'm leveraging my extra time each night by re-investing it to further develop this trading tool. In a couple of months the website will go live and I'll post about it here.

Wednesday, July 06, 2005

FNM - a short candidate




Brandon Frederickson has been making some interesting posts about the real estate bubble lately. After reading this one I felt like making some money out of real estate. Paper assets are my bag though, so naturally I got excited after looking at the above chart of FNM. I drew a lower-channel line in purple on the chart. When FNM breaks this lower channel line, I will probably take that opportunity to get short of it.

Strange thing is, the homebuilder stocks don't really look like they are putting in tops. One of my favorite characteristics of asset bubbles is that they persist longer than most people think they will, and that seems to be the case with the homebuilders. TOL seems to be carving a bull-flag right now so I wouldn't mind getting long TOL to hedge the FNM short. The only reason I would get long a homebuilder this late in the real-estate game is because I know when to get out of a stock near the top, and I don't mind being wrong by getting out too soon. Rookies get in (usually near the top) because they don't think it will ever come down. Thank goodness for them ;-)

Tuesday, July 05, 2005

XWG - First consolidation over $5.00


XWG is right at converging support: the 50-day moving average and the $6.00 level. This is the first consolidation since the stock broke out from the $3.00 level. The first consolidation over $5.00 is the best place to get in to a bullish stock, based on my experiences. When I bought NSI (now NTRI) earlier this year for over 100% gain, it was a similar situation to XWG right now. Buying just right will mean the difference between making money and losing money on XWG, so we'll see how I do =)

Friday, July 01, 2005

No lunch for me yesterday, BAC ate it for me!

I ran out the door yesterday morning, completely forgetting about my lunch. I was short one lot of KRB (MBNA bank) when Bank of America put a bid on them. I posted a little over a week ago when I put the short on. Yea MBNA bank got acquired while I was short of it! The reason I like shorting big caps over small caps is that the likely-hood of the big-cap getting swallowed is lower, and when they do get acquired, the premium isn't enough to take you out of the game. I covered the KRB short-position too soon yesterday though. I could have saved myself about 3% by waiting a day after the bid was put on by BAC, but I didn't want to risk sticking around for a higher bid from somebody like Citi group. I'll have to make about 33% on a one lot trade to make up for the KRB loss. I'm not in a hurry though, its better to let the market come to you.

The reason I forgot my lunch though, I was overcome by a pressing need to identify any warning signs that could have saved me from the loss. Sure enough, it was right there in the yahoo finance headlines, and on the chart. When I put the trade on, I was on the phone with Jarod. He looked at the chart and asked me, "what happened on that positive reversal day?" Without bothering to check, I replied, "beats me." Well yesterday morning I looked. That day the BAC ceo was talking about making a credit-card company acquisition -- reason enough for me to have covered. That'll teach me not to overzealous and careless with the hedging!

I'm not worried by this loss however. Having losing trades is part of the cost of doing business, and I took a couple of good lessons from it besides. If you trade small enough not to break your year on any one trade, you can afford to stay in school, like me =)