3 Strikes and I am out!

1st Strike:

7-15-08: I shorted 4000 shares of FHN for $21,892.37. The day started out negative for financial. The overall trend was downward for most financial so I thought shorting financial was a
safe bet. Never did I thought the market would change so quickly.



I was actually correct that the stock would fall. What I didn't anticipate was the sharp increase. When it hit $5.43, I was tempted to buy back the shares but it quickly moved back to $5.45 range. In less than two minutes later the stock moved passed $5.47 and I still held. Stubborn me! The trend of the stock was upward as of 10:15am. Stubborn me kept my shorts hoping for a fluke. In the market, never hope. Hope never works. I waited till I was hit with a margin call. By then it was the 17th of July and the buy back price was at $7.99.




The final tally including commissions came out to be: -$10,099.75

It feels like I have learned nothing after all the trades I have made since Jan of '08. I knew it was an up trend but I was stubborn. To look back on this trade the lessons I learned:

1) "Trend" is your friend when you are on the right side. If a stock looks to go up then buy not sell short. I should have left around $5.75 at the end of the first day with a buy back on the stock. I would have only lost approximately $1150. I was naive and stupid to stay with it and took a big hit. Do not fight the trend, as a meager player I will never win.

2) "Quality not quantity" the downward trend on the day I shorted the stock seemed to accelerate. So I made a huge risk in shorting the stock. I spend over 50% of my assets on that one trade. Only to anticipate a meager $0.05 to $0.10 per a share profit. The trade really wasn't worth it for the money I was risking. All in all if I had shorted 1000 instead of 4000 shares I would have only risked about 13% of my assets and lost approximately $2750 if I bought back at $7.99.

This trade is my largest single trade lost to date. The next two mistakes were much more heart wrenching. I will continue tomorrow on strike 2 of my three dreadful mistakes in a row.

I have losted almost everything.

I have not posted for a very long time, because I have lost too much in the market. I am again below the $25k required for a day trader and I do not have the liquidity to pay off the margin. It is over for me as a day trader for a long time to come. I can not believe after all the nights I stayed up late analyzing stock charts and business news I can still get f**ked.

I clearly am not a day trader. Without the adequate liquidity I can no longer trade as freely as I please. I am not a number out of the 90%+ that loss money in the market.

I have yet to tell anyone of all my loses. If I have to guesstimate it would be somewhere around $130k. Yes I have lost that much. Later maybe I will post a chart of my progress. My biggest mistakes were shorting financial stocks. I did it three times and lost over $15k just on three trades!

Oh man, I don't have the heart to post the exact losses yet, but I must in order to learn from my frustrating mistakes. I did this upon myself, and I regret playing in the market. There is no easy money in life.

Progress Since Jan. to Apr. '08

Stop Losses

I have yet to learn how to execute a stop loss. The reason I didn't post for over two weeks is mainly due to my recent trade sessions. I have lost over $4000 in the span of three weeks. I have yet to learn my mistakes, because I see charts the way I see them and not leave when I needed to. Stubborn or not this is painful and I believe I have a lot to learn before I can actually play the market. This sucks...........

Pissed Off..............

So I thought I would be able to trade today, guess not. I just learned from my brokerage that cash trades once settled require an addition day to journey the fund into my margin account. What the... I am unable to make any profit for the week. Furthermore my holdings are falling in price value. What terrible timing to get a margin call.

I will be able to day trade on Monday and I will have a more cautious outlook because next week should be very volatile. Its a week were many companies post their 1st quarter's earnings. I must be patient and on the look out for big swings.

I think I am going to switch brokerages pretty soon. This is getting really annoying,

Penny Stocks....

Unable to trade today I again missed out on a lot of shorts. The trading seems to be lacking lately, but still interesting to see it being so volatile. Anyways if I am unable to talk about the present I might as well take a step back into the past. History can be such a valuable lesson.

Around beginning of February '08 I scanned on a stocks screener website for the biggest gainers of the day. I stumbled upon stocks that had a +30% change in one day and thought it was definitely a gold mine. The stocks were cheap too, really cheap. Then I thought to myself, if I put $10k in one of these, I might get a $3k profit just in one day. I then went around websites after websites to see if I could find a stock that I knew could move up the following day.

I picked two stocks the following day and traded over $22k on both of them. Sadly I had to learn the hard way of what I was investing in. Penny stocks. Never would I have imagine I would loss over 80% of the $22k in less than two weeks. I went and did some research after the losses and learned that most penny stocks, about 99.9999999999999% of them are always bad investments. The main reason is because they don't follow the regulations such as NYSE and Nasdaq. Instead they are traded on the OTCBB. It stands for Over The Counter Bulletin Board.

The OTCBB is not as stringent as either the NYSE and Nasdaq when it comes to trading hence there are a lot of scams. One of the best websites to determine if a penny stock is a scam is stockgumshoe.com. The site is magnificent when it comes down to figuring out what stocks are truly worth investing and which ones are scams.

At the time my losses out weigh my gains by almost 10 folds! Yes, I had lost more than $25k in a matter of weeks, not months. February was also the time when I got my margin account approved, but was flagged with a free-riding violation. I was desperate to figuring out a solution, but was unable to for my losses kept piling.

If there was a silver lining to this is the fact that I will never, never trade a stock below a penny. By far the worst type of investment one can make in the stock market. I advise anything under a penny is not worth investing. Even if there are days where gains can go as much as 500%. Like the old sayings goes, "if its too good to be true, it probably is."

I will not disclose the penny stocks I traded because I simply don't want publicity on them. Yet I still hold one of them with over 85% loss from my original purchase price. To be truthful the main reason I am holding is because I am being optimistic. Hoping that the stock will rise back to the price of when I purchased it. Probably will not happen though. In either case, I also get the benefit of a remember of not to trade penny stocks when I see my portfolio. The 85% loss hurts, but I won't make that mistake ever again when I see -85% every morning.

Pattern Day Trade Margin Call!

I received a margin call today and learned what I did wrong. After looking throughly at my brokerage margin rules I "thought" I had figured out how to use margin. Boy was I in for a surprise.

Mistake- I was already listed with "free-rider" violations in January and this came back to haunt me. Due to a 90 day penalty for the violations I am unable to have trades in cash be immediately transfer into margin until settlement of the trade. Settlements usually take three days from the day you purchased the equity. I purchased a stock in cash and overused my amount by just a little over $2000 hence receiving a margin call for the amount. The trade did not automatically transfer into margin because of my past violation and I will have to wait until Friday till I can trade again.

Luckily the pattern day margin call has five days to clear and so my trade in cash will move into margin by Friday. If only I could have bought $2000 less of equity I would have had enough for the $25k requirement in my margin account, damn.

To clarify the situation I will explain the significant penalty with a free ride violation. When you purchase a stock with cash, you need to let the trade to settle. The settling date will take time, usually three days. Once the trade is settle, you are allow to sell the stock. If you trade the stock and you use the proceeds to purchase another stock before the settlement date of the first stock you have incurred a free ride violation. What irony for once in my life I don't want something for "free" that is a free-riding violation. Dang.

The Federal Reserve Board formed a rule "Regualtion T" where trades made in cash require a T+3 days in order to settle. "T" is the trading day and plus three days. When you have a free ride violation, the account can only be trading in cash. However the cash trade must settle before you can use the cash again. Time is money!

When an account does not have a free ride violation and you make a trade in cash with the full amount in your core account, you actually do not have to wait T+3 in order to trade with the cash. At first it's appears deceiving until you realize the simplicity of this rule. The reason an account without a free ride violation can use the cash trade on the same day, before settlement, is because of margin. The cash used to move into the trade may be moved into the unsettled portion of the account, but the cash amount is still considered apart of your $25k limit for a pattern day trader margin account. That way you can still trade with margin even though the cash unsettled for the trade will not effect the buy power of the account. Remember though the trade must still be settled in order for the user to again trade the proceeds from the cash trade. Take note that most brokerage will draw your cash trade into your margin after settlement, which is what I am aiming for. I just didn't know about the settlement deal until today, damn.

I had many stocks in mine to short today and it was a wonderful day for shorts, too bad I suffered from a gain. I actually have a lost right now from the cash trade I made yesterday :(

I can look at the bright side, by Friday I will have my buy power back and probably doubled because the equity I purchased had a 30% margin requirement. Either way I learned a little more about the rules and regulations.

Hey it could have been worse, I could have lost every $$$ by now after all those mistakes I made. Geee, I really wonder how fair I can go with this. I just hope I can break-even before the end of the year. Again I remind myself, "take what you can get, and nothing more."

Gain/Loss

I have yet to update for the past few days because I have been trying to account my trades for the past week. I guess I will just be jumping about my pass trades and my most recent, because I want to measure my progress in day trading.

As of today I am able to invest on margin up to $34,000. I have saved what I could and get what I could into my trade account and my progress for the week is shown below.



I have purposed a hypothetical situation of profiting each trade session at 1% of my initial investment. The following day will be a 1% increase from the previous day. Continuously accumulating at 1% of the invest I should be able to double my investment in 70 trading sessions. That is approximately 14 weeks of trading. Can it be possible, to have $34,000 in profit in less than four months. I will report my progress at the end of each week.

From the graph I posted for the week, on the 5th trade session I made a brutal mistake. I shorted (VRTX) and did not leave until it was too late. The lost hurt financial and mentally because the session ended with Down Jones moving up almost 400 point gain on April FOOLs day 2008! Surely I was a fool that day.

My actual gain is behind by over $600. because of that significant loss on the fifth trade session. Clearly I will need to somehow make this up. Here comes another mistake.

Mistake- Avoid rushing into a trade even if you feel it has a great potential to increase/decrease. I simply didn't wait and made plenty of bad trades. For instance in session 6 I lost plenty from a (BAC) trade. I would have been over my hypothetical value by the 7th trade session if I had not rush into trades just because of instincts. So remember it is better to wait and miss a chance than to jump in and get hurt bad.

The moral of it all is "take what you can get and nothing more." I had one trade where I spent $6000 and only profited $5 after commissions. Even though it was only $5 and half of that goes to taxes, I came out ahead. If I had stayed with the stock that day I would have ended with over $50 loss plus $20 commission fees.

Margin

The only way for me to purchase a stock and sell the stock on the same day and utilize the sales proceeds was to have a margin account. The account has no fees, but one needs to have their brokerage to qualify them for a margin account. Usually brokerage asks participants financial questions and checks their credit history before they are eligible for a margin account.

Within a margin account there are a few basic rules that must be followed at all times. I made a mistake by saying "few" when in fact a margin account can get very confusing.

Mistake 1) When I obtained my margin account I thought I could immediately trade stocks with no limits other than how much I can borrow. There is a restriction of how much one can borrow when performing day trades. The restriction is four times the present day trader's buy power. Buy power is essentially the amount of cash and margin in the trader's account. Of course there is many variables involved in computing one's buy power. (For beginners I advise you to look further into this yourself, the rules of a margin account, before you obtain one.)
Of course my mistake was not learning all the rules involved.

Is it a Pattern or Not?

There are two types of equity traders. Pattern day traders and Non-pattern day traders. To qualify as a pattern day trader the trader must execute four or more trades with the use of margin within five trading sessions. When you purchase a equity and sell it, there lyes two trades. Hence if you open and close two particular equities within five trade sessions, you automatically qualify as a pattern day trader. Any quantity of trades less than four within five sessions is a Non-pattern day trader. It is very important to know which type of trader you are because there are minimum equity, dollars, requirements enforced by your brokerage. In the case of mine, a Non-pattern day trader must have at least $5,000 dollars in their account in order to perform margin trades. A pattern day trader must have at least %25,000 dollars in their account in order to trade on margin. If at any time owner of the account does not have the minimum equity in their account their brokerage will send him/her a "margin call."

Basically a margin call is a warning that you have to apply a certain amount of equity into the account if you want the account to be intact. For instance if you were a pattern day trader and your account net total equity is $26,000. It just so happens you purchase a stock and you closed the stock with a lost of $2000. Your account total is now $24,000. By the end of the trading session you were unable to achieve $25,000 then a margin call is issued to you. The margin call asks you to provide an additional $1000 in equity in order to not have the account restricted. The time you have to resolved the margin call ranges from three to five days, depending on the type of margin call. The example I gave is just one way of encountering a margin call.

When a margin account is restricted owner usually losses their possessions of stocks that are still open. Their brokerage will sell the owners open stocks without notification and all of this is legal. Whether or not the stocks had a gain or loss the brokerage will automatically sell stocks until the owner has achieve enough cash/margin in order to satisfy the margin call. Another restriction is the day trader buy power is no longer a factor of four but a factor of one. In the case described earlier the owner with $24,000 would have this restriction. Until owner is able to satisfy their margin call will the restrictions be uplifted.

Confused yet. I believe one can understand margin rules and regulations much better if they themselves get involved. Get a margin account if you are qualified only until you feel comfortable and knowledgeable about margin. By using margin you can actually see what is involved. Today I am still learning and I will elaborate continuously about margin as I trace back my pass trades. Next session I will talk about how I lost nearly $10,000 in two days.

Before I end, a few basic traders terminologies may need to be define. "open" stock means you just purchase the stock and holding it within your account. When you have a "closed" stock it means you have sold the stock and no longer holding it within your account.

You can have "stock" be also called "equity" and have "equity" be defined as your net amount in your brokerage account.

The past does hurt...

I should have learned how day trading works and how trading equities operate before I made my purchase of "C". Now for my continuation after my first buy/sell equity.

On the same day I sold "C" I immediately used the proceeds to purchase Sallie Mae "SLM" at $17.847/share for 1000 shares. In two hours I sold the shares at $19.17/share for a total profit off +1323 excluding commissions and fees.

Thinking I just made my first gains with such ease and swiftness I decided to trade other stocks on the same day. Little did I know I had violated many of the fundamental rules of the stock exchange.

Mistake 1) I purchased "C" with cash and when I sold it, I did not know that my proceeds would not be in my account balance until after three business days with starting date being when I sold the equity. My mistake was that I initiated another trade on the same day with the same proceeds. You can not do that and I was notified with a violation letter.

Mistake 2) I further incurred two more violations because for the next three trading sessions I was trading in and out of equities with the same amount of cash. My account was then listed with a restriction for 90 days from trading.

My heart just sank. After three sessions of trade I never was notified, online, that I was breaking any rules or regulations. I only found out when I opened the first violation letter three days after I made the violations. A glimmer of hope poke through when I learned about Margins after speaking to one of my brokerage representatives.

This is to much to bear because it was just too painful to recount about all the dumb mistakes I made financially. Yet by blogging I can remind myself and others what NOT to do in stock trading. I will elaborate on Margins in next post.

History

I must reiterate all my trades in order to learn from my mistakes. This means I will have to back track my transitions starting with my first stock.

On Jan 15, 2008 I purchased 1000 shares of Citigroup Inc, (C), for $27 and $19.95 for commission. A purchase total of $27,019.95.

Mistake 1)- The reason I went with this stock was because I thought it had bottomed. I was wrong. The stock drop for four consecutive sessions. Never assume until you have done thorough research on the stock you are purchasing. Read about their pass "income statements" and refer to the stock ratings from financial institutions such as Goldman Sachs. Never blindly get involved without research. (Still to this day I am making this mistake.)

Mistake 2)- I couldn't bare to watch the price fall any further and decided to cut my lost. On the fifth session of owning the stock I sold it. That was a mistake. The night before there was a global stock market free-fall. Never follow what the market does. I anticipated a dreadful day and so did everyone else. On 1/22/08 NYSE initially fell over 400 points. I immediately sold my stocks for a dismal $22.51 a share. The total came out at $22,489.70 including fees and commissions. The federal revenue immediately lowered interest rates and stocks went back up. (C) ended the day at $25.40 :(

For my first ever stock trade my total profit became -$4550.2 including all fees and commissions.

I would continue making mistakes and will disclose them in later posts.

State Tax on Capital Gain

Out of all the states I could have been living I had to be in Massachusetts. Don't get me wrong, I love this state, but short term capital gains are taxed at a ridiculous rate of 12%! That means up to 47% of all my short term capital gains are paid back to the government. Yikes!

Interestingly, to me, the federal taxes long term capital gain is at 15% and Massachusetts takes 5%. So if I hold a stock for one year or more and sell it with a net gain, I am only taxed 20%. I did further research into the Massachusetts tax laws and found the following excerpt in the 2006 Guidebook to Massachusetts Taxes. (Listed on Pg 38)

Sorry for the small tax size but I didn't feel like typing every word of the excerpt.

What is interesting is in Part C the former method for taxing capital gains in Massachusetts was a huge incentive to long term share holders. If a stock was held for six years or longer and the owner sells it he/she would not have their net gains be taxed under the state's tax laws. Remarkable, but unfortunately they amended Part C at the end of 2001. Darn it! One more reason to hold stocks short term. To me 5% or 12% is not that much of a difference if I consider gaining on every short term trade. I know that's highly unlikely.

Oh if I am wondering, yes to date I have not filed my 2007 taxes yet. I still have two weeks.... give or take a few days.

Initial Fears...

Have you ever felt afraid of doing something because you weren't familiar with it? Yet you hear people who tried that "something" expresses great satisfaction. Like you first time riding a roller-coaster or first time on a two wheel bicycle.

Anyways the initial fears I have in playing stocks comes around the year after. Taxes. Both the Federal and State taxes returns do not favor day traders. I remember reading in an article stating the most complex portion of the federal tax returns is related to Schedule D. Before I continue I must admit I did not learn many of the parameters all US tax payers must obey upon until two months into day trading stocks. I still am learning about taxes today!

In the case of the federal taxes any short/long term capital gain/loss is required to be filed on schedule D. Trades that are "wash" sales must also be included in schedule D. "Wash" sales is defined as a stock you sold at a lost and is excluded as a capital loss if you re-purchase the stock within a month, 30 day time period. (The Wash sale rule was created to prevent one to offset gains from the same stock.)

Capital gain/loss-
Any gains I make in a stock that I own less than one year is taxed at the same rate as my ordinary income. So if hypothetically make over 357,700 in short term capital gain, by tax rate will reach all the way to 35%.

2008 Tax Brackets

Tax Rate		Single	Married Filing Jointly
10%		Not over $8,025	Not over $16,050
15%		$8,025 - $32,550	$16,050 - $65,100
25%		$32,550 - $78,850	$65,100 - $131,450
28%		$78,850 - $164,550	$131,450 - $200,300
33%		$164,550 - $357,700	$200,300 - $357,700
35%		Over $357,700	Over $357,700

Its important to note that the tax rates are calculated in stacking method. For instance if I, single, let say made 30k taxable income for 2008. I would pay the first $8025 at the 10% and what is left over of the 30k, $21975, corresponds to a tax rate of 15%. My total tax payment comes out to be $4098.75, which is 13.66% of my income. Before I get all jumpy and happy I need to add the state tax. I think this is all for now, I will continue tomorrow.

First Post!

I started my journey of trading stocks on Jan. 08. With a starting income of approximately $28k. I need to catch up this blog with my trades and in due time I will. For now as of to date, 3-24-08, my income for trade is approximately 14.5k.

Indeed I lost half of my savings, but to get things worst I am borrowing money and I have been spending approximately 80% of my income each month since I began trading stocks. S**T!

I will recount my trades in order to remind myself the painful mistakes I have made. This is also good for readers who would like to know how to trade stocks but do not know how to. I too am a beginner in trading stocks.