Nov 2007 Summary

November is my worst month since I started full-time trading in April.

I lose $15,000 in total. Normally I had one blow up day in one month, but this time I had 5 horrible days.

11/7    -7,100      ONXX/CCRT

11/15  -6,667      BIDU

11/16  -17,777    BIDU

11/26   -10,772   BIDU

11/30  -7,240     FSLR/ZOLT

Several reasons contributed my big losses. a) Over-sizing. I traded much larger size than my risk level  for those high flying stocks like BIDU and FSLR. As these high priced stocks would normally move 1 to 2 dollars within 1 minute, 500 shares or 1000 shares a trade put me down 1K or 2K in no time.  I would cut loss and then found my position was profitable if I held 3 minutes longer. And it led to my 2nd mistake: b) revenge-trading.  When I closed a big losing position, if the market proved that my closed position was profitable in next 1 to 2 hours, I  felt mad and always traded revengefully to try to make back my money, and  which just added more losses to my book.

There is another reason for the losses which may not be counted as mistake: c) mixed trading strategies with trend-following and counter-trend. My usual trading style is counter-trend, in which I try to pick up the tops and bottoms and catch a minimum pullback movement like 10 cents. After viewed so many traders who gained multiple points in one trade, I wanted to use trend-following strategy as well.  In stead of going complete trend-following strategy, I mixed the two strategies. It caused a lot confusion in my head. When I entered a counter-trend trades and it did not give me profit right away, I started to think the trend is still valid and I cut loss prematurely and reversed my position for another quick loss. Similar thing happened for trend following trades too.  I did not have a solid trend-following setups and trading plan yet. I just looked at my 3-min charts for the visible trend.  My entry timing was very bad, and the 3-min charts had too much noise and shook me out most of the time. Without much experience on following trend, I had no confidence to hold the position to survive the minimum pullback.

In order to continue trading career, I need to answer several questions this weekend.

1) Should I continue to try and learn follow-trend trading strategy? My counter-trend strategy can give me consistent profit but it looks very bad to have 2:1 or 3:1 risk/reward ratio and occasionally it gave me a huge loss after I averaged down several times without good outcome. Trend-following definitely has much more promises in terms of low risk entry and high profit potential. My only concern is that if it fits my trading personality. I tried trend-following setup before and did not have much success.

2) If I continue follow-trend strategy, which setup should I focus my learning on? It could be a pivot break-out, support/resistance break-out, base and breakout,  narrow range inside bar pull back,  and many others.

3) After trade setup style is decided, how can I find those setups from the market?  Should I focus on a watch list which contains the several momentum stocks with large price range? Should I build a list from daily chart which shows potential breakout from resistance/support level, or stocks consolidated for several days and ready for a trend day? Or use up/down gaped stocks?  No matter which one I choose, I need to find the tools which can help me create the watch list, or  develop my own tools for the purpose.

4) After watch list is created, how should I setup my screen to make my trading execution quick and easy? I need to choose the time frame(3/5/15 min), indicators for the charts. I need to work out the entry/exit rules, entry/exit tactics, position sizing, etc.

5) After all above questions are solved, I need to practice the new strategy with small size for 1 to 3 months to tune the strategy, create trading mindset, build my confidence on the strategy and my own ability to execute the strategy.

It takes a lot time and effort to work out a new trading strategy even we already have so much information on the Internet. The point is to find one strategy and setup which can allow me trade it comfortably.

back from China

I came back from China one month ago. I went my hometown and Beijing, visited my parents and many old friends who I did not meet for last 5 to 10 years. It’s a pretty impressive trip. As people already know, China is growing fast. The changes in Chinese countryside really impressed me. I grew up in countryside of the central part of China, all my relatives are still living there. As farmers/peasants, we used to pay a lot government tax and local tax which left us nothing except very basic needs. Now there is no any sort of agriculture tax any more, not only that, government even pay peasants small allowance for their work.  So peasants work on the land, keep whatever they produce from the land, and also collect the allowance from government. Even better, they are all eligible for newly developed health insurance system for countryside which make them seeing doctor more affordable.  Considering China has more than 800 million peasants, I think it’s a big achievement.

China Unicom and China Mobile are all over the country. Every people from age 15 to 55 has a mobile phone. Broadband Internet access still has some room to grow. The blog sites blogger.com and wordpress.com are blocked in China. Web accesses to international sites sometimes get timeout, not sure if it caused by content filter deployed on the Internet gateway or by the traffic overload.

I managed to trade lightly on IB. The connection is good most of the time. Occasionally I would lose the market data feed for a short period of time. Trading from China could work great for me if the network connection is more stable. I can get a job and work in the daytime, and trade US stocks between 9:30pm to 12:00am at night.  My trading profit sounds a lot after converting to local currency which makes me feel much better too.

I felt more relaxed in past several months without posting on this blog. So expect no or much less posts coming soon.