Archive | January, 2011

The Short Squeeze

28 Jan

Short squeezes are something that happen A LOT and they define the professional trader from the inexperienced trader. Once a stock starts to break out or make a move the retail traders begin to chasing the move (because they feel they “missed out”), but the professionals are already in the move.

At the point that the professionals are selling, the stock is just making news in the media and CNBC is talking about how this stock is a “great time to buy.” The professionals begin dumping their position and all the chasers start getting their stops hit which sends a massive sell off, or in the case of a short squeeze all the shorts are forced to cover and a rally occurs. The professionals in the meantime have already taken profits and are more than likely trading in the direction of the squeeze.

How Do You Know When to Stop Trading for the Day?

28 Jan

We’ve all asked this question, so what’s the answer?

Should you stop when a specific $ amount is reached? When a specific # of points have been tallied? When you have 2 losers in a row? Well I can’t tell you what’s right for you, but I CAN tell you what I do. Over the years I have noticed that there are a handful of great days in the month and the rest are simply average. Therefore when I begin the day and I have a winner, followed by another winner, and setups continue to hit targets, I will continue to trade all the valid setups until one fails. This way, I take the most out of a highly technical day which may only happen 5 or 6 times in a month. When they come, mike them for all they’re worth!

Somethings to help…

  • Identify the type of day (trend or range bound) ASAP.
  • Determine if the setups are technical and providing reduced risk trades.

If both these criteria have been met and I continue to have winning trades late into the morning then I take advantage!

The Super Bowl Indicator

24 Jan

It has been deemed a Steelers/Packers showdown in Super Bowl XLV.

As economists and authors struggle to find a relationship for even the most unrelated items, such as in the book Freakonomics, and Outliers it shouldn’t surprise you that a relationship between the Super Bowl winner and the stock market has emerged over the past 50 years.

What Does Super Bowl Indicator Mean? This indicator is based on the belief that a Super Bowl win by the old AFL (AFC division) leads to a decline in the stock market for the coming year, and a win by the old NFL (NFC division) means the stock market will be up for the year.

Surprisingly (or unsurprisingly depending on how you look at it) the super bowl indicator has an accuracy rate of around 85% correct over the past years. That being said, we’ll continue our bets with our current methodology. Go Steelers!

Economics in One Lesson

22 Jan

The shortest and surest way to learn economics. This book is a great framework for expanding your knowledge of economics.

Economics in One Lesson

Options Expiry Week

17 Jan

Week 3 of 2011 kicks off remembering Martin Luther King Jr. We have a shortened week this week and options expiry on Friday along with some big earnings from AAPL on 1/18 and GOOG on 1/20. For those traders who play gaps, options expiry Friday is a day to skip. Trader’s who usually trade the first 30-mins, be extremely cautious on option’s X as market orders are higher than usual during this time. We’re expecting a fairly volatile week for intraday trading. With the VIX being so low, make sure to bring your armor.

Filing for ‘Trader Tax Status’

16 Jan

“In this world there is nothing that is certain except death and taxes” – Benjamin Franklin

The government provides it’s biggest tax breaks to business owners and investors. As a self-employed trader, there are many ways to limit your tax liability along contribute to retirement plans and deduct additional business expenses. I am not a licensed tax professional, so I refer all my trader friends and colleagues to Robert Green over at Green Trader Tax.

Green and his company are the leading CPAs in this niche and has a phenomenal book on the subject of taxes for traders appropriately titles, The Tax Guide for Traders. I highly recommend picking up a copy to educate yourself on the tax breaks that are out there for traders as most CPA’s do not fully understand these laws.

Understanding Federal Spending and the Budget Deficit

14 Jan

Here’s a cool video I found over at JackHeald.com. It puts in perspective how little the federal government’s tax cut programs really affect the overall picture.

Earnings Season Underway with AA

10 Jan

As is tradition Alcoa (AA) kicks off earnings season today. This usually leads to a lot of whipsawing during the open and should be traded with caution. It does pose great for intraday traders and traders playing these news announcements. A full list of earnings announcements can be found here.