Near bottom again,,,

So I again had another horrible week in trading and lose another -$1500 and for that I have stopped trading. Not because I want to but because my account is below $500. I do not even have $400 in my trade account. Ouch. It is still hurting, but that is life. It sucks to be bad at trading.

I stumbled upon an interesting site that updates daily of President Obama's overall national approval rating. Link. It is not fairing well, but I am not surprise. Many people had high expectations for him and because he has yet to bring America out of the recession people are losing their faith in him. President Obama has fought many battles to be where he is at today, and just because after 7 months the country has yet to get better it still shouldn't be fair to doubt in his abilities. Why it took President Bush eight years in office to get America through 2008. Why in the world could one expect President Obama to rewind eight years of President Bush's terms in less than eight years? America loves performance and wants it immediately.

President Obama has been much more transparent than form President Bush. He has been in front of America weekly if not daily on all issues facing America. Just because he can not fix everything of do everything he has promised in seven months is not fair. Yet this is America and without performance I am nothing. Life is cruel and unjust to all those that stay still and watch. I hope president Obama will surpass all expectations, because I always love routing for the underdog.

Trend Failure....

First off my apologies for the poor picture. I think it has something to do with my computer's screen resolution, which I will try to resolve before future posts.

What a devastating week for me. It can not get worst. The chart above illustrates that even if a trend is identified the market can still go the other way. Case in point. On Monday July 13, 09 I sold iron condors at 915/920calls & 825/830puts for about $0.60 excluding commissions. (I have been selling calls since march and been profiting from 10% to 35% weekly, however I was putting in 90% to 100% of my capital to achieve such profits. I consider this trading style being very aggressive and just down right crazy. Yet I give it my all to reading charts daily in knowing fully what odds I have of failing.) Anticipating on a bigger fall and wanting out of the money options expire worthless I went with the lower puts. Boy was that a huge mistake. The end result today is that the SPX ended above 915 therefore I lose all my capital in the trade. I did not do the exact calculation, but from the amount of options I traded the total loss comes close to $-34,120 not my biggest one sum lost experienced but largest of this year. I am worst of than I started at the beginning of the year. I will log in my mistakes in hopes others and myself can learn from them.

What happened?

Over the previous weekend I had the SPX chart reviewed upon the monthly, weekly, and daily trends. All trends expected a downward for the coming week. There was a head and shoulder pattern as shown on the chart below:

Not anticipating a significant up movement for the week I had the Fibonacci retracement line around $878.91 to $927.28. Anticipating the head and shoulder pattern would result in a right shoulder I went and shorted $915 calls. The 23.6% retracement was right around that value and not think the start of 2nd quarter earning season could be this optimistic the SPX shot upward for the next four days. The market as of 3:45pm EST of 07-16-09 has the SPX stand at 943.08! In less than four sessions the SPX index moved up 64+ points or +7.2%. (Note to self earning season is dangerous for indexes to swing up or down. Very dangerous.)

Mistakes:

1) The risk I put myself to gain 10% was not worth it. Understand if I had the patience and waited out this week I may have executed a lot better trades. I need to build patience, because sometimes the best trades are the ones I never make. This one should have been one.

2) I never done an iron condor trade until now, so this is my first trading the option spread and not knowing full well of its power I got slaughtered. Hey at least I am still breathing and alive. Yet barely. In any case I should have practice the spread before I went in it for real. Now that I have played it I will always remember this trade.

3) Following trends is good when it comes to trading but never put all your eggs in one basket. Again the risk to reward ratio was horrible in the method I choose to trade. Yet I should have know it wasn't a good week to sell calls. Earning season can be so unpredictable. Then again the market is always unpredictable.

4) I could not cope with this lose and stayed home isolating myself. If I had known how much I really could lose in this trade I would not have made the trade. Odds were in my favor at the beginning of the week, but it wasn't when it counted the most. I should not let this get to me, but learn from it. Yet a lot of money just gone out of my account again. I simply can not win. This type of mentality has destroyed my mind & body, and has created so many distractions. I clearly need to get my mind straight before I play again. Its just too much.

Looking forward to the Futures....

I am eating dinner as of 1:05am. Yes eating spaghetti with tostitos sauce while I type this post. I will try to make the story short. I was planning to eat chips with the tostitos sauce for dinner, but found the top portion of the jar growing white molds. As usual I disposal as much of the white mold sauce. I took what was left and heated it in a stove pot and mixed it with cooked spaghetti. There dinner served.

Now I will go back to trading. The title of this post was written like so on purpose. I just signed up for trading futures on TOS. I hope I can make a foturnate now, lol. I just better make sure not to lose my shirt. For over a month I have researched as much as I could on trading futures. One of my favorite blogs on trading futures is "eminiaddict". He truely is trying to help people out. All his service does not require a single fee. Heck he doesn't even have a donate link on his blog. Although I think he should make one. He is one and a million of wonderful traders willing to help beginners. Hopefully I can follow in his footsteps with this blog.

So the most popular future out there right now is this future contract called ES Mini. ES Mini is a future contract created by CME, (Chicago Mercantile Exchange) and the future corresponds to the S&P 500 Index. So the ES Mini is another way to trade indices. What makes the ES Mini so interesting to me is that it can be traded almost 24 hours a day from Monday through Friday! Any news that gets posted overnight during a weekday US stock closed session may still effect the ES Mini.

This is one step closer to a global market. To top it all off today I just learned that people in America can actually trade in Japan's Nikki 225 futures too. The ticker symbol is "NKD". I do not know much outside of the S&P, Nasdaq, and Dow Jones, but it could get interesting because now I am planning on trading before I go to bed. Man so excited I can not wait.

With all this excitement I know I am going to make stupid trades. So rather then playing for real I plan on using a TOS paper money account first. Get my feet wet with these so call futures contracts. There are quite a few out there. There are the ones following the Nasdaq- /NQ E-mini, Dow Jones- /YM E-mini, and plenty more from CME. (Check future contracts from CME.) I have noticed the /ES futures are the most traded contracts out of all futures by far so with signifcant amount of liquidty is in the /ES would mean it is easier to get in and out of trades.

Finally Results!

After all that procrastination I have my 2009 performance on Excel. It includes all commission deductions, wash sales, and expired options. What it does not include is the reduction of profit after taxes. (Technically I am still in the red so no taxes on loses yet.) I know I am still in the red but since April I have been hooked to a particular option spread that has brought me consistent gains. More on that in a later post. Now just look below to see how I have fared so far this year.

I began trading options around Nov '08 and haven't returned to trading actual stock shares ever since. Although I love options I have also had my worst ever losses with them. The main reason for the loses was my inability to factor in time decay. Me as a beginner thought naively that if I purchased an option worth $0.10 and sell it at a $1.00 I would make a 1000% profit. What I did not consider was the amount of time I had in order for the option premium to reach $1.00 before expiration. There lies my misunderstanding for option trades. When you pay to purchase an option and it expires out of the money, you get zip-poo in return. Nothing. Zero. Nada. A big fat O. So I did that for about the first five months of my option trading experience and racked in an amazing loss of over $30k. (How stupid is that? Probably ranks in the top 10 of all stupid things I did in my lifetime to date.) The chart above only covers year '09 but I had some terrible option trades in '08 too. The chart of my overall performance including 2008, the year I started trading is important to me. Important to me in many ways such as learning not to repeat the same mistakes and the fact that even if I hit any significant profit for 2009 it would still be overshadowed by the losses of '08. Hence I still have work to put together my overall lifetime performance results. That will be for another post.

Equilibrium

Today I read a little about the G-8 summit and came up with a hypothesis for the future of United State's economy. So the G-8 consists of:

Canada,
France,
Germany,
Italy,
Japan,
Russia,
United Kingdom,
United States,

All members were concerned about further deterioration in the global economy. Furthermore the IMF recently predicted a darker outlook on the world economy than previous estimates. Yet one can also read that all these countries are concerned about the emerging market. Why?

Emerging markets such as China, India, and Brazil are becoming bigger players in how the global economy operates. This was not the case when the G8 group was formed. This leads me to believe that the G8 is losing their grip on global wealth to the emerging market. To look good G8 discloses its willingness to work with the emerging markets to subdue a downward global economy, but in reality they are asking for help because they are drowning in debt. Also they are asking China and India to slowdown on industrialization for the sake of environmental welfare. Yeah right, like America would slowdown during their industrialization. Climate is only an excuse for trying to stop what can not be stopped.

In short America and the rest of G8 will soon have to acknowledge China, India and other emerging markets as full members of the so call "G8." (Not some lame term such as "Outreach O5.") Of course there is the G20 but when the day G8 is dismantled that is the day when its existing members have to accept the economy is truly globalized and all should have an equal say as in how the global economy should operate. Therefore America can no longer have the most and spend the most because the share of wealth is expanding from a domestic population to a global population. That does not mean America can not be prosperous, or does it? Too many variables to consider and it is driving me crazy.

P.S.- My first comment from Chris is about the VXV chart from TOS being incorrect. I acknowledge that VXV does not work on TOS but if you put in VXV.X it is the 3 month CBOE volatility. Just to verify like you asked I went to CBOE's website and downloaded the .csv file on closing prices on the VXV and today 07-07-09 it closed at 32.09 identical to the value read off of TOS. Thanks for the comment though, greatly appericate it.

Playing with Volatility ?

After reading an Article by Bill Luby about the VIX I decided to look into it deeper. The link to his article: "Take a Longer View on Volatility" Basically I wanted to see if the 10% difference between the 1month CBOE S&P500 volatility and the 3month COBE S&P 500 volatilty will produce a change in the direction of a trend.

The graph above has the green/red line representing the VIX while the blue line representing the VXV. I used 20 days data on an hourly chart. Notice on the closing of June 19, 09 the two lines % difference was significant. The one month volatility subsided that day versus the three month volatility. So what news could have reduce the one month volatility?

Not technically news but the market was set for a Quadruple Witching Day. Simply options were going to expire on that particular day and one would expect a lot of volatility on expiration dates, huh? This goes in line with Bill's theory that the VXV can not be affected as much on a daily event as the VIX. Clearly the volatility was still above thirty for the VXV and oddly enough the following trading day the VIX went beyond the thirty value. Just to add the following Monday the DOW dropped 200 points.

I added a Fibonacci line of retracement and for the following Monday, July 05, 09 the VIX seems posed to move up pass the 50% and 38.2% retracements. So what will this mean for the DOW? Well on Wednesday the VIX hit a bottom while the VXV hit 61.6% retracement. Then without warning the both indexes shot up. Each index gaining about 2 points, thats pretty signficant on a daily move. That day the DOW went up about 50 points. The following day the DOW dropped over 223 points, and the increase in volitilty indexes continued to race upward. My feelings are if the gap between the VIX and VXV are wider the more triple digits movement we will get from the DOW. Whether it will be up or down depends on a lot of factors, but reading through these charts I believe this coming week the market is pose for battle between the bulls and bears. (I know, I know a lot of people have been saying that, but I just got one more evidence as to this being true.) If the upside can not be sustained then we will continue with the downward trend for the past three weeks. Remember trend is your friend.

4th of July

Happy 4th of July to everyone.

I am happy with my results for the week. I could not sleep the night before the unemployment numbers were to be posted. Unfortunately the data did not fair too well and the market crumbled. With a short week for the markets I do not know if this coming Monday the market will go up or down. Odds are in favor of a bearish move, but the drop was so significant relative to weekly moves since March '09 lows I feel there could be a bounce from here.

In either case it is just my opinion and the market does not care about my opinions. On another note I have finally got into the green for the year, but after compute my 2009 federal taxes to date I fear the worst. my trades created a lot of taxes that I am required to pay and that reduces my profit down to a red number again. This leads me to the all so important progress chart.

I had promised to post my stock progress on this blog, but procrastination is my best trait so I have yet to done so. I decided to make it through Excel and post the data as a weekly line graph. There are a few factors I will incorporate into the chart that I have not seen other blog traders do. That is I will also post my entire life's trading results, and my profits after federal and state taxes. That way all these factors will help me get my yearly tax returns done promptly and give readers a different perspective about gains and losses. The data is in the works as I type this post and hopefully I can get it done before the end of next week.