January summary. Sun Jan 31

It's been quite a good month for me considering that I had a week away and there was a public holiday as well but I'm a little disappointed in the last week or so because the size and speed of the sell off surprised me and I could have held some positions for longer. Still, since mid October last year this is the 4th sell off - md Oct, mid Nov, early Dec and early Jan - and the previous 3 reversed quite promptly. I've probably forsaken some profit now for the opportunity to be mobile when the market turns, there should be a nice retracement rally in the next week or two. Overall, it looks like a top has made and the next rally is unlikely to breach 4960.

Here's a summary of featured trades for the month. The normal position size is roughly $50k.

Still the beat goes on. Fri Jan 29

Markets just keep chopping lower so there's been no continuation of yesterday's retracement. Base metals are weak again and after 40 minutes the Xjo index is down 59 points, not really bouncing much yet.
I bought back another 10,000 Ozl at 107.5 for a 600 dollar gain and I'm still short 20k. I've also got a new trade to feature which is a continuation short in Ipl. It had a little 3 wave retracement which should have taken out some short positions and encouraged a few trading longs so I think there'll be some momentum for a move down towards 320 or perhaps even 300. My signal was at 340 and I got short 15,000 shares at 338.

12.54 The market is particularly weak and it seems like selling out of resources is gathering steam. The banks are copping it too, down 88 points at 12.55. The index is sitting at 4585, I thought 4600 might be the rough area for a pullback to reach but there's still a lot of momentum and I think we're in the third wave of a sell off so even a rally soon should fairly quickly fail. The next level might be the early November level of 4502.

1.15 I've been fiddling around with the blog because I don't like the spacing I've been getting with the extra large charts so it's back to large ones. Just click on them and they'll display at a nice readable size. I also lost my colour settings so it's a bit random now.

4.18 It was a hefty down day, finishing on the lows at 4570 which is a loss of 104 points. Short 15k Ipl and 20k Ozl. More on Monday.

Metals crunched. Thu Jan 28

We've been sold down heavily over the last week or so and today the market has been trying to retrace after a small overnight rally on US indices. We're up 4 points at 12.18 pm which is down from an earlier high of up 20 points. It's actually quite an impressive performance because base metal prices were hit again last night. Despite that headwind Bhp and Rio are a little firmer today and most resource stocks are steady.
Challenger has been back up to 413 today although it's down to 402 now. I bought back my last 6k at 406 as it was rising early for a profit of 540 and 990 overall, less 24 dollars in costs.
I can't find any new trades today as I think the downtrend has further to go but I would like to see some of the resource stocks rally in the next day or two before I short them again.
My only remaining featured trade is a short in Ozl, which is down 1.5 at 111.5.

3.01 The afternoon is proving quite strong and there's the hint of a reversal rally about so I've bought back 10000 Ozl at 111.5 for a 200 dollar gain as the stock broke support but is looking as if there's a chance that it will regain the key 112 level.

4.20 Well, today was a pretty tedious day although a small mercy is that Ozl didn't quite manage to close at 112, finishing at 111.5. The market managed a gain of 29 points which is well below other markets in our time zone which are up close to 2% with US overnight futures quite firm as well.
I've got a couple of potential trades for tomorrow, probably reversal buys.

Preconceived notions. Wed Jan 27

Looking at trading for the last couple of days I noted that gold had been holding well and I expected Lihir Gold to rally against my short position. I was so relieved to see it fall with the general market that I bought back the last 8000 at 302 for a profit of 1480 on that portion and 2460 overall less 33 costs. I wasn't actually paying enough attention to the chart which was showing a break of short term support and I've missed the chance to buy back cheaper with Lgl at 295 having had a low at 293.

12.54 The market is making its first effort to rally after a 90 point fall not helped by slightly higher than expected CPI figures for Q4 2009. There's been an acceleration of the switching out of resources with Fortescue, Paladin and Alumina particularly hard hit of the stock I follow.
I've shorted a part position in OZ minerals which is predominantly copper and although I have some misgivings because it's not far away from good support at 112, the downtrends in resource stocks are quite established and most are failing to hold support.
I'm short 20,000 Ozl at 113.5 with the stock just ticking back up to 115.

2.53 Actually the worst thing about the Lgl trade was that I quickly realised that it wasn't going to bounce and could have reshorted for only a cent or two against me, except for the fact that now I have to send off an email and wait for up to half an hour before finding out whether I can short something by which time.... So thanks a lot to all the rumourtrage P traders who brought us this situation.

3.05 I had a strange situation in Challenger. It had ground lower from 408 to 394. I bought back 1500 shares at 395 due to the large fall as a prudent little trade when it reversed rapidly to be at 410, up 2 on the day. I got nervous about some corporate action and bought another 1500 at 405 (so 3000 at 400 ave. for a profit of 450) but it's back to 400 as if nothing had happened. Just a little squeeze I guess.

4.18 The market chopped around mostly after the first two hours, trying to rally and then sliding back into the close for a loss of 73 points. I finished Ozl with the sale of another 20k at 113.5. Cgf closed at 405.

Perfunctory. Mon Jan 25

In a perfunctory nod to overnight falls on Wall street the Australian market opened down more than 70 points but some bargain hunting or perhaps short covering ahead of the Australia day holiday tomorrow has meant that the fall is only a tad over 1% at 12.16 pm.
I've actually got no new trades today as most stocks in my watchlist are in a downtrend already or are having modest countertrend moves which might continue for a day or two. The only thing I've done is to complete my selling in Cgf with another 3000 at 408 to leave me short 12000 at an average of just over 413. It's trading at 406, down 8 on the day.
Lihir gold, my other short position, is down 4 at 302. It rallied intraday on Friday and showed some resilience for most of the morning but now it looks like pushing down to new lows.

4.13 A grinding retracement made me glad that I was cautious about looking for shorts. The market has finished with a loss of only 33 points. I bought back the 3000 short in Cgf at 408 for square less a few dollars cost so in the end it's as you were and I'm using the original 9k short at 415 for my calculations. With the market closed tomorrow I'm happy with just a small book.

9th one gone? Fri Jan 22

The fat cats might have lost that all important 9th life last night. After walking away from being hit by the anvil of a crashing market and tucking into the cream as the market bounced it's looking like the luck has run out. With the  US (formerly investment, now commercial) banks oblivious to community anger the US administration has taken out the big stick with restrictions planned on proprietary trading, ownership of hedge funds etc. It's one thing to bail out the financial system and quite another to support predatory, parasitical behaviour so it's going to be interesting to see who's brave enough to oppose the proposals.
Along with belated recognition of Chinese attempts to cool their economy, the bank bashing led to a 200 point drop in the Dow and similar in the other US indices and in Europe. Resource plays were hit as well although the falls are orderly so far, at 12.07 pm, with a drop of 80 points.
Gold was down again, it's below USD 1100 now, and I bought back 4000 more Lihir at 302.5 to book 720 dollars profit on those 4k with a balance of 8k to go.
I'm scratching my head to find some new trades, not unusual with a market that has gapped down. What's interesting is that the market has fallen faster than I anticipated and a lot of individual stocks have too, so it's quite possible that the Xjo has topped and most rallies will fail to reach recent highs.
I have shorted a few Challenger today at 417 (they're 420 now) but I'm not completely convinced about it yet. If I put on a full position then I'll make it my trade of the day.
Here's the Xjo chart. This leg down is extending which implies that it will ultimately form 5 down. It's starting to look like somewhere around 4600 might see this out. It's 4743 as I write.

4.10 Challenger did weaken some more and overall I've sold 9000 shares at an average price of 415. My full position would be a short of 12k shares but I'm still not quite convinced. It has been a long slow uptrend with the suggestion of a 5th wave top and a small break down today as it traded below 417. My caution is due to the long trend and the general choppiness of the stock. The close is below the break at 414.

The market overall has rallied into the close, perhaps some short covering, and the loss is a modest 77 points or 1.6% on the Xjo index compared to losses of greater than 2% in Japan and China.

Turning off the tap. Thu Jan 21

It seems that the weakness in Chinese markets yesterday was caused by government efforts to slow credit growth and that weakness continued into the overnight Northern hemisphere sessions as the European markets fell around 2% and the Americans a little over 1%. It's mid morning and we're down a modest 35 points having fallen yesterday and presumably also waiting to see it there'll be any further Chinese weakness.
Gold fell quite hard overnight, almost 2.5%, and my trade for the day is a short in Lihir Gold. I quite like this because unlike a lot of the other stocks on my watch list, Lgl is not still in an uptrend.
It had an impulsive fall in early December followed by a modest, retracement style rally. There was a little sell signal yesterday afternoon which I was interested in but didn't take. Once it became clear that the stock would open lower, I felt it was worth taking a weaker entry price as it looks like confirmation of a significant change in sentiment about the stock. I'm short 16000 at 320.5 and the stock has edged lower to 318.

11.40 I bought back another 5000 Ipl at 345, close enough to my target. It's still looking weak so maybe I'll get a windfall on the rest. Profit on the second portion is 900 dollars.

12.23 I just remembered that we didn't fall yesterday, instead we managed a small rise after early strength evaporated. Right now we're squeezing up as we wait for further Chinese developments including CPI data.

2.00 I'm out of Ipl now, having bought back the last 5000 at 339 as the stock hit 335 but then blipped up despite renewed market weakness on higher than expected Chinese inflation. Profit on the last 5k was 1200 for a deal total of 2700 less 33 dollars in costs.

4.14 We drifted off to close down 41 points which is near the lows. I bought back 4000 Lgl at 314 for a profit of 260 dollars, still short 12k.

So far, so good. Wed Jan 20

The US indices had a 1% bounce last night and the Australian market has rallied 39 points at midday but we haven't been above yesterday's high. That leaves me still working with the scenario that the next leg of a pullback is unfolding. I used some early strength to put on a couple of short positions. I think the best one is in Incitec Pivot so that's the trade for the day.

It's a counter trend trade so it's not the finest quality position but it failed to make a new high yesterday and finished by making a reversal bar. I expect another leg down to, maybe, 340 which would still leave the stock in a uptrend but imply a move back to the bottom of the trend channel. It was firm early and I sold 5000 at 368 and another 5k at 364. I plan to sell another 5k but so far it's not bouncing with the Spi.

2.20 Sold another 4000 Ipl at 356 about half an hour ago as it started to slide after a pause of an hour or two. Average is 363 for the 14000. The stock is on its lows now at 349 as the market has slid to be up only 15 points.

4.10 I bought back 4000 Ipl at 348 for a partial profit of 600 dollars. There was a brief low at 346 but the last hour has seen it rally to close at 352. Still short the balance of 10000 shares at 363. The market has drifted off all afternoon to be up just 7 points on the close. Markets in the region have generally ignored the overnight bounce in the US with the Hong Kong and Shanghai markets down over 1% and the Topix down half a percent.

The next leg. Tue Jan 19

I've been away from the office for much of the day and after some early strength there's been a solid downturn so that approaching 4pm we're down close to 1%. I sold the last 5000 Aoe at 456 fairly early to make 750 on that portion and 1290 less 30 costs, overall. As the Xjo started to look pretty ominous, I decided to tip out the last 9000 Sgp at 391 (v 409) for a loss of 1620 on those shares, offset by a 30 dollar gain earlier less 32 in costs.
Here's the Xjo chart. It looks like a standard set up for another leg down.

Having been away, I haven't really had the opportunty to get any short positions on board. Mostly, I don't expect a very steep fall but there are a few stocks that are tradeable on the downside. I'm hoping for some early strength tomorrow which might give me a chance to do something.

Mixed but the trend is holding. Mon Jan 18

I'm back and feeling refreshed after a week on the South coast of New South Wales. Looking at the Xjo index and a few of the larger overseas indices, it looks like we're having a mild correction although I don't see signs of a top having been made.

I left one part position in Stockland and I didn't quite realise how relaxed I'd be so really I should have sold before leaving. The stock fell from 406 to as low as 387. I'm long at 409. Having stuffed up, I can see that it has made a small 5 wave pattern down and today the stock has rallied above the highs of Friday. All things considered, I'll stay long with a tick below that 387 low as a stop.

The featured stock for the day is Arrow Energy. This had the 3rd wave surge which I traded and while I've been away it has completed a little correction. Last Thursday there was a small buy signal as the stock traded above the bar with the correction low. The bounce was sluggish on Thursday and Friday though so today there was an opportunity to buy without having missed out on very much. I'm long 11000 at 441. This is a quick trade with the first target being a minor new high. It's actually had that already with a sale at 452. I could have sold half there but didn't. At the moment, the Xjo futures are running so I might get another opportunity. I'll then use a trailing stop and the 60 minute chart to try to exit the rest.

2.10 Arrow Energy is back up near the day's highs at 451 and I've sold out 6000 at 450 for a profit of 9 cents per share giving a total of 540 dollars. Just to reiterate, I see this as a quick spike to a new high which is why I'm left with just 5000 shares.

4.10 No further changes. The market has had a strong day, rising from an early loss of about 30 points and climbing all day to finish up 11 points. It's the first day that a majority of market participants would be back from holidays and the volume has been good. Arrow closed at 452.

The story so far. Fri Jan 8

This is the second year of my trading blog although not yet the anniversary as I started in February 2009. I've been treating it as education or, more accurately, re-education because I was well aware that I had got into bad habits and needed to do the hard yards to change them. Most experienced traders would admit that although they know what they should do in certain situations, they will often do exactly the opposite to their own detriment.
If you assume the trader is a rational man or woman then this makes no sense. However, unless you're a classical economist, I think that you would understand that many of our responses are habitual and emotion driven. In the past and in common with most traders, my first line of attack would have been to try to tinker with my system but although I have done some playing about with my trading signals, I now see this as a secondary issue. Instead, given my existing set of tools, why was I not following my method. Did I not trust it? Was it psychologically too difficult to follow for me? Had I simply got slack with the normal disciplines of trading? These probably cover the main areas with lots of other questions following. For example, if I didn't trust my method was it because there were technical problems, practical ones or perhaps I had psychological issues with trust?
I've come to realise that the psychological issues are often the most powerful driving force. In general life terms I've been working on some things for a few years and mostly they fall outside the scope of this blog but in broad terms I suppose that building up my own confidence and sense of self worth has improved my health and happiness although not necessarily my wealth yet! That last part is not so hard to understand, if you're driven to achieve financially in order to compensate for something that's lacking then you might have to replace that drive with something more healthy if you no longer need to prove yourself - or change what you're doing.
I was slightly nervous about this last point - I have a family to support - but it turns out that I still love trading and I've been thoroughly enjoying the challenge of rebuilding myself as a trader.
Obviously, everyone's interest in and approach to their own psychology is different so that in trading terms the practical things which can be more universally useful are the sort of techniques found in any number of self help books about defining your goals, visualisation, active imagination and a positive approach. I tended to be sceptical about these tools, thinking of them as being like putting a band aid on a gaping wound if, for example, you had serious issues about money. Having given them more time in recent years, I realise that you can use these tools to help you to think about and to focus on what you do and don't want. They can help you to think through your ideas and ultimately to save a lot of time compared to the usual process of taking hasty action.
One of the other things I've realised (and Malcolm Gladwell is very good on this in books such as Outliers as is Norman Doidge in The Brain That Changes Itself) is that rote learning is valuable. So one of the things I've been doing is practising putting on my trades and taking them off in a disciplined way, without second guessing myself, so that the habits become bred in the bone.
Another good idea, which takes much of the stress out of trading, is to recast your idea of what is a successful trade. For example, as long as you follow your rules then a trade is a success. Whether it gave you a profit or loss is irrelevant. Obviously that's what a casino would do and thinking back, when I was an options market maker, I never looked back to see whether any one trade made or lost money, I just did the trades that had an edge.
And yes, at the end of it all, I've done lots of tinkering with my trading techniques. But I'm confident that it was for the right reason.

12.18 The market is up 30 points and I've sold the last 5000 Lgl at 337 (v 318) for a profit of 950, giving 2850 for the deal altogether less 31 costs. The last 15000 Mgr were sold at 166 (v 154.5) giving a profit of 1725 and 3100 for the total deal less 30 costs.
The only thing left, to sell out today before my holiday break, is Stockland Group. I was quite happy to buy these at a potential short term peak earlier this week as I quite forgot that I would have to tip them out by Friday. My entry price is 409 and they've been as high as 411 this morning although they're back to 406, up 6. I'm quite happy with the chart so I might keep this into next week after all.

4.13 The market had a muted afternoon, drifting off but holding a 13 point gain. I sold 3000 Sgp at 410 for a 30 dollar gain which covers costs. I've left the rest which I'll probably sell via a call to my broker next week. I'm off on holiday for a week. More to follow!

Looking for closure. Thu Jan 7

I'm spending time down the coast next week so the plan is to get out of my positions by the close of trade tomorrow. Not ideal necessarily, as the rhythm of the individual stocks is not going to match my holiday timetable but there you go. I'll enjoy myself more with no positions on.
I sold out the 6000 remaining Fortescue, slightly too early, this morning at 529 (v 440) for a further 5340 profit giving a total of 8750 less 31 costs. A really nice trade, with a roughly 17% return on a 50k investment held for 4 trading days.
I've still got Lihir, Mirvac and Stockland left. Gold was stronger again last night, rising USD 20, although continued AUD strength mutes the gains for us. Anyway, Lihir is up 5 at 345 (at 12.47 pm).

4.11 I sold out another 5000 Lgl at 344 (v 318) for a 1300 gain. Also sold out 10k more Mgr at 163 (v 154.5) for 850 profit. The market drifted lower all day, closing down 22 points.

Sydney Test Match. Wed Jan 6

It's approaching lunch in the Australia v Pakistan test and I imagine half of the country is following the cricket, the market is dull as dishwater, roughly unchanged. I'm away on holiday next week so I'm just looking at closing out my stock positions. So far today, the two resources longs, Fmg and Lgl, are firmer while the property stocks, Mgr and Sgp are down.

I'm also looking to do some intraday Spi trading but there are no obvious opportunities. Broadly, the chart looks like it's correcting the overnight run up on Monday/Tuesday and it has the characteristic choppy pattern of a correction. Again, I'm waiting.

2.51 I've finally got a tradeable set up in the Spi and I'm long 3 at 4915.

This chart doesn't want to centre...

News of the day is Fortescue which is up 8% at 497. I haven't sold any yet.

3.21 I've succumbed and sold 3000 Fmg (of 11k) at 501 (v 440) for a part profit of 1830. Possibly there are takeover or placement rumours driving the stock - I've no idea really - or just a big short squeeze. There looks like there's more in it so I'll hold most overnight.

Meanwhile the Spi is still churning

4.30 The set up in the Spi wasn't that great after all and I watched it tick past the earlier low before recovering. Since the rally where I went long had overlapped previous lows, I was fairly confident that it was a choppy range. In the end I sold out for square and just a loss of 9 dollars on costs.                                       

I also sold another 2000 Fmg at 520 (v 440) on the close, for a further 1600 profit.

Arrowing higher. Tue Jan 5

It turns out that I was overly cautious in Arrow Energy as it has accelerated today to be up 20 at 445 at 12.20 pm. The stock is clearly not finished on its run but having stuffed up slightly I decided to get out and wait for a pullback to get on again. Sold the last 6000 shares at an average of 441.33. Profit on this last 6000 was 2090 for a total on the deal of 3160 less 32 costs.

I've got a trade for the day in Stockland Group. It broke out of a range this morning and I thought it might drift back but so far it hasn't. I've bought 6000 at 407 and I'd like to buy the other half towards the close. I'm long another stock in this sector, Mgr, and it is up 5% so there's some general strength. Here's the daily. It looks as if there's a completed correction. The key resistance will be the top of the range just below 420.

4.14 The market has just drifted sideways all day to close up 48 points or 1%. I bought the last 6000 Sgp on the close at 411 to average 409. I also sold out 5000 of the Mgr at 165 (v 154.5) for a part profit of 525.

Featured stocks are still all longs in Fmg, Lgl, Mgr and Sgp.

Happy New Year. Mon Jan 4, 2010

Happy New Year! The market has shrugged off some end of year weakness in the US and is up 10 points at 12.11 pm. Unfortunately I'm not feeling the best so I'm going to keep this to a minimum today.

4.12 Not the worst day to be feeling ill. I've spent most of the day on the couch watching cricket. The market itself has been in a quiet holiday mood and the early strength dwindled away before a little blip up in the match to leave us with a gain of 6 points.
I sold out half of my Arrow Energy which is 6,000 shares at an average of 424.33 for a gain of 1070 less costs of 32. I took advantage of a couple of strong days to lighten the load.

 I also sold out one third of the Lihir Gold long at 330 (v 318) which is 5,000 shares at 12 c for a gain of 600 less costs of 31 (costs are for the whole deal, ie buy 15k and sell 15k). The reasoning in Lgl is that it has had a few days to push through 331 and hasn't so far, therefore I'm taking some risk out of the position.