I found myself fighting the market early on today.  I gave back roughly $300 dollars by noon and even found myself down a little over a $100.  I began yelling at my monitors as if they would yell back, but I made up my mind at that point I was not going to lose on the day.  Now, $70 bucks is nothing to get all worked up about, but what I am proud of is my ability to bounce back.  Stay tuned, I have the feeling the next two days are going to be big.

Total Gains for the day: $70.60

Day Trading Video for 8-20-2008

Today ended up a positive $5 dollars.  Again all of the volatility in the market was reserved for the morning traders.  After being up $21 dollars in two days, I am getting that day trader itch to change my system.  But, I have been doing this long enough to know you must embrace the uncertainty in order to be a successful trader. 

Day Trades for 8-19-2008

IVZ .04%  -$4 (Commissions)

UNH .16% +$9

Total Gains for the day: $5

Day Trading Lesson for the Day

If a stock fails at a whole number three times, it is probably a good time to sell.

Good Luck Trading,

Al Hill

Barrons is portraying a "curtain call" in store for shares of Fannie Mae and Freddie Mac, which fell over 20% each today on concerns of insolvency.  Barrons suggested that the government would be likely to bailout the two government sponsored entities (GSE's), wiping out its equity holders, preferred and common and even subordinated debt holders.  Both of these stocks are near multi decade lows and have dropped over 90% since 2007.

There is a concern over Fannie Mae's ability to withstand further losses in their sub-prime, Alt-A, and interest only loans.   

From my perspective, as a technical analyst, here are my thoughts.  I have seen a handful of stocks over the past 10 years exhibit the strength and speed of deterioration that has been seen in Freddie Mac and Fannie Mae.  Most of them are now 0.  There has been relentless selling pressure, couple with volume all the way down from 80 to 6 today.  There have been short squeezes along the way, which have clearly allowed larger traders to unload their shares.

Today I made a $16 bucks and I am proud of it.  The market went flat the last 2 hours of the day, so I took a defensive trading approach and took what the market gave me.  Check out the trading video below, where I review my trades.

Day Trades for 8-18-2008

NRG .16%  +$10

BAC .14% +$6

Total Gains for the day: $16

Day Trading Lesson for the Day

When the market is in a tight trading range, take the money at your first target.

Good Luck Trading,

Al Hill

I just received an email from the owners of INO informing us of a promotion they are running.  There is currently a special for 2 free months of service when you buy a yearly membership.  For those of you on the fence, I think this is a good deal.  Anyhow, I am in no way trying to sell their service to you, I just wanted to make those of you who are interested aware of this deal.

Click HERE to sign up for INO.

Why Lock In Profits

Asking the question of why to lock in profits, is really a silly question when one thinks about it.  The whole point of trading is to make money, and locking in profits is in synch with this line of thinking.  While this sounds so elementary, the vast majority of traders are unable to do this on a consistent basis.  We have all heard the excuses, the market is too flat, too volatile, my account is too small, my account is too large, etc.  The bottom line, are you making money?  If the answer to this question is no, you might want to start locking in profits today.

Average Up Overview

Averaging up is rarely discussed in the financial world.  Traders and money managers always speak of averaging down.  How many times have you heard traders say, "The stock is cheap here, buy more!".  I have never quite understood this logic.  If the stock is going lower, which means your initial thought was wrong, why would you buy more?  The majority of traders that make averaging down a part of their trading system end up losing.  The goal in trading is to cut losses quickly, not compound them.  That is why averaging up makes so much sense.  A trader is adding to a winning position as long as it trends higher.

How To Average Up

The first decision a trader must make is where to average up.  The obvious point is when a stock is able to clear a significant swing high or low.  Another method is to add to a winning play when you are up a certain percentage.  Depending on which timeframe you are trading, this could be as small as 1% or as high as 10%. 

Definition of a Rogue Trader

A rogue trader is the ultimate bad boy of trading.  This trader has reached a point where they no longer care about protecting their client or the company for which they trade.  The trader has fallen into a vicious cycle of reckless trading.  This trader will experience a number of successes but in the end, their lack of proper money management will always lead to disastrous results.

Definition of Days to Cover

Days to cover is a formula which tracks the number of shares short in the market relative to the available float.  This allows a trader to see how bearish or bullish traders are on a security.  The last component of the ratio is the amount of daily volume.  If you know the number of shares short and compare that to the average daily volume, you can estimate how long it would take for the short sellers to exit their positions.  This ratio gives a trader a rough estimate of how much buying pressure is present in the market for a security.

Formula for Days to Cover

The below formula displays how to calculate the days to cover ratio: