Daytrading

[PHANTASM]

You could throw a dart at the stock market and pick something that would give you ten percent gain a week. I made nine percent last week with one move and with my primary account frozen due to excessive trading (lol).

 

I am going to set up a margin account whereby I can make unlimited trades on the same stock during a three-day period. Currently my account is limited since it is not technically considered a margin account. Then I can trade more often.

[PHANTASM]

Hello everyone.

 

This week, the market is bouncing back, as expected. All the gloomers were writing in all the trader blogs over the weekend that this was the beginning of "the correction" they eagerly anticipate. A lot of these guys are shorters trying to scare the newb investors. Don't listen to these guys. Anyone who tells you the market is about to crash and you should sell now just wants to scare you so they can steal your money. That's why we use Stop Orders - so even if there is a "crash", we get out the moment our holdings start to fall a few percent, not three days later when it's too late.

 

This week the Consumer Confidence Report comes out Tuesday. Expect a brief rise on some consumer-oriented stocks. I'm thinking PIR (Pier One) might go a little higher tomorrow (it's up 6% today already). Be ready to dump it by Friday when yet another nasty unemployment report comes out. There should be good manufacturing reports on Wednesday and Thursday, so we might have a decent week thru Thursday.

 

The govt is going to announce on Friday that unemployment has risen to 9.8% from 9.7%, and the market will drop as planned. The real number is 16% by their own estimates when they include people who cannot collect unemployment benefits. This doesn't include tens of millions of marginalized illegal immigrants or tens of millions of part-time workers who used to have real jobs.

 

I bought some CHB today (they make house windows). They are poised for a nice return later this week. They have dropped down to 0.50 from 0.65 a couple weeks ago, and I'm hoping Wednesday and Thursday's reports bounce them back up to 0.60. That will give a nice 20% return. Wish me luck.

[PHANTASM]

You might be wondering who I blame for this global financial crisis. Then again, you probably don't give a fock what I think lol. It's not Obama or Bush or Clinton or global trade. It's Ben Bernanke, the Chairman of the Federal Reserve. He precipitated the problem by raising the US federal interest rate by 1/4 of a point seventeen times in a row.

 

This is what triggered the rise in interest rates that triggered the housing crisis, that triggered the collapse of collateralized debt obligations and the shadow derivative market, which in turn collapsed Lehman Brothers last September. The Lehman collapse was a financial heart attack that seized up the global economy.

 

Bernanke caused this mess in a misguided attempt to lower inflation by reducing the money supply to the financial institutions that lend to the rest of the planet. Dr. Bernanke somehow failed to realize that the US economy is not a rowboat but a battleship, and tiny moves in the interest rate take months to have any effect. He stupidly kept increasing the interest rate long past the point when he should have stopped. He raised it from 1.0% to 5.25% in a two-year period. Insane.

 

Here's a graph to show you what he did:

 

[PHANTASM]

Well this week was weird and worth analyzing here. On Monday we had the traditional Yom Kippur rally, where all the shorters take the holiday off and the market goes up a couple percent. Tuesday we had a consumer confidence report that was even lower than expected, and I made a buy of CHB at a lowered price of 0.50 hoping to get a rebound from the manufacturing reports that were due out Wednesday and Thursday.

 

These reports were unexpectedly bad, and the entire market slid a few points on both days. My CHB stock dropped down to 0.42, for a 16% drop, but I had pre-set a 4% trail and the stock was sold automatically for me at 0.47 while it was plummetting. So I lost 6%, instead of the 16% loss a "long-term investor" would have eaten. It still sucks to lose money when you were planning to make money.

 

It's important to review your mistakes and in this case I overrelied on the anticipated results of these Federal reports. There is no real way to see what is in these reports, and all the serious bloggers speculate on what they will contain. These reports absolutely dominate the market.

 

I want to reiterate that if you are going to trade stocks you absolutely have to learn to use Stop Orders or you will lose your assets very quickly. If you have a mutual fund acount or a 401K and your broker will not let you set Stop Orders then you are being set up to be a victim. Take the money out of stocks now before the upcoming commercial real estate crash. Move it to bonds, money market fund, commodity EFTs, or put it into a real trading account where you can set Stop Orders. Don't delay.

 

The market is slowing down and may drop suddenly again unless Congress raises the debt ceiling so the Federal Reserve can print more money to keep the rally going. This is important stuff. The only thing keeping this country going (and me lol) is the stock market. There are a lot of powerful shorters who want to trigger a "correction" so they can literally steal all the gains made over the last six months. Also, a lot of gold investors want the stock market to crash so that all the gloomers will buy up more useless gold.

 

If the USA collapses USSR-style, bullets and canned food would far more useful than a silly brick of gold. Congress is going to delay as usual, but eventually, as more banks go under (triggering an FDIC solvency crisis), and as FNM and FRE absorb more defaults, they will just raise the debt ceiling and look like saviors. They will just use the current crisis to extend federal control over more sectors of the US economy. That's why they are doing it piecemeal. It's really very simple.

 

I bought some Citibank ( C ) stock today at $4.52 when it hit today's botom. It is up already and should bounce back nicely. I love Citibank, it's predictable. The HFTs make up most of the volume, so you just have to anticipate their pattern and you can make ten percent every week, most of the time.

 

The other interesting event this week was the crash of CIT (not Citibank, but "CIT"). This troubled mortgage bank went from $1.60 Monday to $2.20 on Tuesday due to a merger rumor on Monday. I had been keeping an eye on this one for a while, and wanted to buy it last week. I wish I could have, because it went up about 38% in one day. This is the kind of gain I obsess over. I would have sold it with a 3% trailing stop order the moment it started going down on Wednesday and kept a 35% profit. I was locked out of the market most of last week due to a minor SEC violation.

 

The stock began a freefall on Tuesday when the merger fell through, and is now at $1.06. This is a >100% drop in two days. Anyone betting short on this merger made a fortune. It's interesting when people fail. Here's a pic:

 

 

 

[PHANTASM]

Something interesting is happening today. Fannie Mae and Freddie Mac both fell ~15% today. This is a huge potential buying opportunity for anyone with extra cash in the market today.

 

They got a bad review from some auditors, who say they are worthless, and there was an automated sell-off. Everyone knows they are worthless, but they are too big to fail lol. These stocks are HFT-traded, and backed by the US government. They are two of the five financials that dominate the US stock market. I am buying $2000 worth today. Should be easy alpha. May take a while to go back up but they can't go bankrupt or the global economy will crash.

 

 

[PHANTASM]

Well, I told you they were too big to fail. Obama just announced ten minutes ago that the US government is going to start buying all their debt. This was done to prevent another Lehman-style collapse. We just witnessed a successful rescue operation of the global economy. Cheers to Obama for doing something useful!

 

[PHANTASM]

It has been almost two months since anything interesting has happened in the stock market. The Dow has floated around 10,000 and unemployment has officially reached 10% (it's really about 18% or 22% depending on whose numbers you use). The 2009 rally has been stuck in the mud for the last two months and all the big financial stocks have been losing value.

 

I've been trading AMD (yes, the chip maker). It goes up and down 5% or so every few days. It's been up almost 100% over the last couple months since I made the big switch from trading Citibank constantly to trading AMD. I pull a couple grand out of my account every month to get by, and use whatever is leftover like seed money to make next month's profit. It's a recession survival strategy, but it doesn't go anywhere, and it isn't anything you want on your resume. When your relatives ask what you do for a living and you say "I collect unemployment while I sit around daytrading and playing video games", no one is impressed. Sigh.

 

AMD has sucked in a lot of the daytrader crowd, who were playing the big fins six months ago. It will keep going up, for a while, at least until after Christmas. They got rid of a bad CEO and that made the stock jumped, and then a LOT of money flowed in when it got over $5 (the magic number for institutional investors).

 

Today I saw the big news - the Democrats are getting their massive spending bill passed and they have the 60 votes needed to prevent the Republicans from stopping it. But - get this - they left out the $626 billion needed for the Defense Department to fund our global peace campaign. What does this mean? Well, in case you live in a cave, the US government has reached its debt ceiling, which is the maximum amount of money it is allowed to be in debt - currently this number is $12.1 trillion. Obama desperately wants to get that raised another couple trillion so he can spend even more money next year than he spent this year, and the Republicans have been opposing him so they can get re-elected.

 

The global economy lost at least $60 trillion last year, so plus or minus a couple trillion doesn't mean anything really. It's like buying a six-pack of beer after you just wasted $300 on Christmas presents. The people at the top know this, but don't want ordinary Americans to think too hard about why their wages and most consumer prices keep dropping instead of rising as you would expect if they were actually increasing the money supply. Just keep the stock market rising so the middle class won't revolt. Don't talk about Social Security.

 

The speculation is that the Dems are going to connect the Defense appropriation bill to the debt ceiling bill, to force the Republicans to pass it in order to get money for the military. It's a dangerous gamble, but it will work because the Republicans want to be seen as "defending" the military from those evil Democrats (lol).

 

This means two things- 1) the commercial real estate crash scheduled for early next year can be mitigated, if not prevented. Oh sure, millions of people will lose everything, thousands of businesses will still go under, but there will be enough federal funds available to protect the major investment banks who will lose trillions once again. There will be another round of bailouts, more media whining, etc, but we can avoid another Lehman-style collapse that would plunge us into another Great Depression. So it's good news.

 

2) These devalued "big fins" - the five HFT traded stocks - Goldman, Citibank, AIG, Fannie Mae, and Freddie Mac, will get a huge bounce soon and the fun can begin again for daytraders. Citibank needs $20 billion to pay back their TARP loan, then they can be free of the federal government and start making serious money again. Fannie and Freddie (FNM and FRE) need hundreds of billions to dig out of the hole from the mortgage crash, and when they get it (and they will) those $1 stocks will go up to $5.

 

Cheers.

[PHANTASM]

FRE is up ~40% (from $1.10 to $1.50) since Friday.

 

FNM is up ~25% from $0.90 to $1.22) since Friday.

 

 

 

Citibank is down because they are preparing a share offering or a reverse split soon (it's a secret lol). The day it issues the next share offering/reverse split, the price will fall sharply. Buy then. It will double after that. Citibank is bankrupt and useless, and everybody knows it, but that has nothing to do with you or me making a lot of money off of it.

 

The Feds have a LOT of shares in Citibank as collateral for their last bailout. The US govt wants their $20 billion back, and they are making Citibank cut their bonuses until they get their $20 bil. Citibank doesn't want to give the government their $20 billion back, any more than you want to repay your student loan. The interest is low, and you'd rather use that money for almost anything besides paying off some idiot who was dumb enough to lend you money.

 

Citibank wants to devalue their shares and then buy the shares back from the govt at a low price, thus kicking them out of the boardroom and keeping the $20 bil, or at least the amount leftover after they buy back the shares. When the US govt is no longer a shareholder, then Citibank executives can give themselves their huge bonuses (retroactively, probably). Also they then don't HAVE to pay back that $20 billion TARP loan, they can just tell the govt they are broke or the dog ate it or whatever and the US govt will just go away like a one-night stand in a co-ed dorm. The govt will have no leverage to get their $20 billion back any more than a credit company who gives my wife a $10,000 card can get their money back.

 

So, when you understand this, you see why Citibank is trying to get their share down, either by diluting the number of shares (already in progress), or by doing the opposite - a reverse split. Either action can work. Once they get this crap straightened out their stock will bounce back up.

 

The other thing is - get this - the govt knows all this and wants to keep Citibank share price up, which means they can basically get away with murder right now because the govt doesn't want to lose their "investment" lol. As long as the govt is a shareholder, they are obligated to protect the Citibank share price. Hilarious. So, now Citibank can do that reverse split I told you guys about four or five months ago in this thread. And the government will hold their shares and get burned.

 

The fastest way to destroy the value of a stock without causing an automated sell-off is a reverse split. It can be timed strategically, so you (the CEO) can purchase your short options through a proxy investor the moment you announce the reverse split. When they do the reverse split the price will go up by the factor of the split. So you want your short options to be excecuted right then, at the highest possible price, so you can achieve the maximum price drop when you pay back your borrowed short shares and keep the difference.

 

The stock price will instantly crash five seconds after the reverse split is announced, because every shareholder will try to dump C manually. But the split will bypass the HFTs and Stop Orders because it will be priced higher even as it is falling. Expect a lot of insider proxy dumps a few days before this.

 

For example - if it's $3.00, and they do a five-to-one reverse, it goes up to $15.00, then everyone sells manually, it goes down to $9.00, but no Stop Orders are triggered, so they can cause massive chaos and catch the automated traders with their pants down. And the shorters get to make all that money on the fall from $15 to $9. It causes a cascade of selling as no one wants to be the last person to sell. This happened with AIG a few months ago.

 

Now, the big money at the top is waiting for this split, so they can exercise their short options as the price falls, then when it stabilizes they can buy it back and go long on the rebound. Easy money.

[PHANTASM]

Treasury Dept just announced they have decided to postpone selling their shares for 90 days:

 

http://www.politicsdaily.com/2009/12/17/treasury-quickly-halts-plan-to-sell-citigroup-stock/

 

Guess they didn't want to get robbed lol (see my last post above).

 

So, hold off on the Citibank till then. Look for other easy kills. Gotta pay the bills today, not three months from now lol.

[Ra.]

I think your leaving out some crucial information about trading. While it can be an amazingly great way to make money, the amount of dedication and study required to be consistently successful is something this topic is failing to address.

 

almost 90% of traders fail (I'm being lenient here) as has been quoted and documented for a very long time. Why? Simply because people get into it thinking it will be easy, and being unprepared for the volatility inherent in this field, blow their account sky high.

 

This is not something you can just decide to do on a whim.

 

Not to mention I'm kind of weary of your pricing points phantasm. Very few SUCCESSFUL traders would go over 2-5% per trade. Fewer would be successful when they did so.

 

Trading or Investing is not gambling it is an art a skill. However it is extremely difficult to master and the road to mastery can involve lots of -$ unless you do the proper homework.

 

P.S

This is not a personal swipe at you phantasm by any means. I just want people to understand the depth of this field and to hopefully alleviate future monetary loss.

[PHANTASM]

Compared to many things in life, daytrading is rather safe and boring. The worst that happens if you screw up is that you lose a small percentage of your money. With Stop Orders, you can sell stocks when they lose a few percent of their value. There's really not much risk there at all. Not compared to real estate, starting a business, arms dealing, or spending $20,000 going to college in hopes of getting a decent job someday.

 

I have as much in common with corporate stockbrokers as a hitman does with a mallcop. I'm just in it to make money, that's all. No other reason.

 

There are forums full of rogue daytraders talking about what stocks are going up tomorrow. Try zerohedge.com and seekingalpha.com.

[krAzy :)]

phantasm did u go to economy college?

[PHANTASM]

phantasm did u go to economy college?

 

No but I had some friends who taught me how to do this stuff. And I lost a lot of money when I was learning. So I paid a lot for my education, in a way.

[PHANTASM]

Just had a nice conversation this evening on xfire with a buddy about which stocks to buy and how to get set up on Scottrade. So I thought I would come back to this old tutorial, clean it up a bit, and start writing in it again.

 

I just got a nice income tax refund last week so I am setting up a margin account with Scottrade. I ran out of money last year during my extended unemployment and had to drain the money I had in my account for living expenses. So now I that have some extra money to invest I can start this up again.

[NoGooD]

Hey Phan,

Thanks for taking the time to write this tut.I realize there isn't alot of people replying or asking questions but it's probably one of the best reads on F|A IMO. A cursory glance at the tutorials section would back me up on that since the only other tutorial that has more views is for reducing lag in ET.

 

While Ra. does have a point, your correct to point out the amount of money people spend going to college to get an education when in reality what you need is a moderate case of aspergers syndrome and a good internet connection.

 

Thanks again for taking the time to throw this stuff down.