Buy Low Sell High, Limit Your Downside, Take Profit Often (In normal market I would let my profit ride but not this market right now)

Someone commented on an article posted on ZeroHedge yesterday and I quote "the market is so rigged and non-efficient that no position makes sense, and that taking any position is just gambling with cheaters at the table". Indeed, the market has become a roulette game, a market where its liquidity is powered by HFT's fast churning machines and algorithms. It seems each day the market decides on a fresh start and off she goes up and down (collective greed or fear), fundamentals aside. Dotcom bubbles deja vu. It is news snippet driven, and that 99% of the time is a rehash of someone's else post on twitter. Pre-market volume has dried up as no one dares to make the first move for fear of getting whipsawed once the bell rings. One never knows what is around the corner and which HFT or hedge fund will be calling the shots during the first 10 minutes and every minute after that. It is the biggest casino in the world.

Can a savvy stock picker still manage to come out ahead? perhaps. Traders and hedgies are pushing the envelope ever so slightly until it falls off the table, especially those who are playing catch up compared to their peers (or is it their bonus). There are two sticky notes on my walls staring at me that read "Buy Low, Sell High and Take Profit". I am learning to cut my loss early if I am wrong footed, usually this means within the next hour or close out my trade before the close. Cash is safer with me than parked on a stock in this volatile market environment. Increasingly many are talking of a market tipping over and heading south. For most fund managers, the reality is there is really no other place to park client's money if their mandate is to stay mostly invested (and doing with much trepidation) and as such equities are marching on at relentless pace. However, lately we are beginning to see signs of cracks.

I keep reminding myself that trading is simple, there is no need to over complicate one's trading strategies. Get out of something that is not working, has not worked, and stick with what works and has worked in the past. I have a handful of biotech and drug recovery companies I buy (and Sell) and that is working right now and I thank my lucky stars. I also own individual small miners as proxy to SLW, GDX and their underlying ETFs (SLV, GLD). I have been able to profit from these smaller names trading alongside the bigger names. I am still selling puts and calls to balance the volatility on my portfolio. The last few months, I tried to profit off short term momentum of a stock candidate. I am not buying any blue chips or utilities or any other hot shot that are all sitting at 52 week high. When the market crushes, I will have my pickings there.

If you are looking for a good book on the HFTs, read this book Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market

Good luck trading

A Trade At A Time...Staying Vigilant Amidst Market Volatility

Uugh...I have definitely been procrastinating here.

Update.....It is late afternoon Friday Nov 8, 2013, a day after the big sell off in the DOW, the Nasdaq and the S&P (from the get go in the morning, one we have not had in a long long time). Today is also the day the markets (miraculously) recouped all the previous day's losses (despite Twitter (TWTR) losing another 8% and Tesla (TSLA) trying to find support). One has to respect the market. The market is after all a reflection of the collective actions of the trading crowd and psyche - the greed and fear. The % of folks using margins to trade and the amount of leverage used is now as high as in the summer of 2007 during the Lehman crisis. Market indices seem to move in clips, my level II quotes have also not been orderly to my naked eyes. The culprit to me is the HFTs, hijacking quote feeds many seconds ahead and stalling some whether intentionally or otherwise. Often, my level II quotes on some stocks on Ameritrade ThinkOrSwim (TOS) look very disorderly while on others they look fine. This is how flash crash happens, bids being withheld to precipitate a drop in the asks from the unsuspected sellers. This market is Man versus Machine, it is clear ordinary investors are being had. Many have written about the HFTs extensively and I want to know why hasn't the SEC taken action! Do they need another 600 point flash crash before they act!!

So in the last many months I have watched my portfolio yanked 180 degrees, up and down and sideways and I am ahead by about 15% when it could have more if I had been more diligent. It is my own fault really. If I had known the Fed would be too chickened to taper and the DOW, S&P and the Nasdaq were going to make the 20-30% relentless climb in 2013, I would have put 1/5th of my money in a broad market index fund...hindsight is 20/20. The last 10 months have definitely been bad news is good news, business as usual with the Fed flooding the market with all the money it can print. Well, even PIMCO's Gross has his bad days, what about a small fry like me who is just trying to make some money from trading to pay her bills.

One can no longer trade on fundamentals, stock price defies logic and leaves even many professionals searching for explanations. It is the Flavor of the Month trade, the whatever is on CNBC trade. I find myself reaching for Alexander Elder's book "Trading for a living - Psychology, Trading Tactics and Money Management" on my shelf. I am a momentum trader, I get into a position if my level II data suggests good size bids and/or momentum. For me to put my cash to work and sell cash covered puts or add a position, I look for speculative stocks often in the news with moderate to high beta and implied volatility on their options of between 70%-130%. After all I am selling volatility in puts. When that volatility subsides (or time decay), I will collect a neat sum for the premium if the trade does not turn sour on me. This in essence is my trading strategy. I trade for a living, albeit a small one (my life is simple), so anytime I can scalp for profits I will trade.

If you are interested in Alexander Elder's books Here is the link on Amazon

In the past I would sell cash covered puts on a candidate I have identified, 2 to 3 months out for a nice 6-10% if they expire worthless come expiration time. In the last few months, the market has been so volatile that my puts would decay quickly and then it would just stall out as market or my stock get whipsawed. Often it would come under bear raid as they call it; traders emboldened by cheap leverage. Not surprisingly, this often happened on a bad market day coincided with momentum traders reacting to a negative opinion piece on SeekingAlpha. To me, the market has become nonsensical, the gyrations on individual stock much too big and it can only point to margin trading and participants trying to ramp a stock up or down and profit from it. 'Risks On" with the leverage one can get it seems. So I find myself pulling the trigger to close out a profitable trade sooner than ever before. For the same reason I no longer sell covered calls on every stock in my holdings but instead ride my positions and exit when share price reaches my target. If I had sold calls and the stock spikes a lot I would have to pay more to close out my covered calls and would therefore not be able to participate in the sudden big gain. I recalled Cramer telling his viewers that he does not want his viewers to sell covered calls (for the same reason). I am not a big fan of Cramer, however, his calls do move the market and many traders listen to what he has to say and take the cues from his show whether they choose to trade against or trade with his calls.

Lastly, why isn't Pimco's Bill Gross a candidate for the next Chairman of the Fed? I am certainly not the only one who thinks he would make a great Fed Chairman. Wall Street bankers may not like the Bond king, he is however a sensible man if you read his investment letters and writings. America's financial future and the future of the next generation is much at stake here and another artificially created boom bust cycle will no doubt dethrone America and the Dollar from the world stage if that process has not already begun.