SelfInvestors.com contributor Barry shares some more thoughts on tools of the trade, trading emotions, the Fed, ETF options and keeping it all in perspective. For more about Barry, please see his first introductory post. Thank again Barry, another great post!
Get Ready, Get Set, Trade…. Options on ETFs by Barry Brush
I have a confession to make. "Trading is as much psychological as it is skill." The skill consists of being able to control the emotions of fear and greed that try to hitch a ride on every trade. It is being able to manage your time while preparing and taking action during the trade itself. Your mental set up is vital; but so too is your physical location and Setup. Depending upon your trading style, you have to be ready to mind the store when the store needs minding. If you have a trade in play and have set mental stops rather than sell stop limits, you’ll need to be available intra-day or after the close to execute your strategy. It goes without saying that your risk in a trade must be managed to a minimum; but your hardware must be flawless as well. Here’s a snapshot of my setup, and the place where I try to manage my risk.
I don’t have 6 twenty two inch monitors and a water cooled server in a closet. I trade at home in the family room from a Tempur-Pedic chair in front of a 17 inch Dell XPS laptop with all of the processor and RAM I could get into it. It sits on a cooling pad in the middle of my roll top desk with 12 of my favorite trading books to the left and a raft of option trading DVDs and CDs to my right. I keep a portion of my brains handy on about 100 3×5 cards I’ve developed over time. I use hardwired broadband on an eithernet with Wi-Fi and an AT&T air card as a backup. Their 3G network runs all my charts and real time applications from the front seat of our car while traveling. I’ve driven NY to FL and rarely broke lock on a signal. At home, Time Warner’s Roadrunner is not 100%, even in the great city of Charlotte, NC. For a spare, I bought one of those light weight Sony Laptop VGN some things on EBay for $600 and replaced the broken LCD myself for a few more dollars. If its time to exit, its time; and I don’t want to have to call my broker. It’s the principle of the thing.
I’m anal when it comes to backing up data on my computer; having learned the hard way after multiple disk failures over the years. Loosing a hard drive can be like a death in the family; so, my computer pumps its brains into both a 100 GB and 1.5 TB backup drives. Just to be safe, I subscribe to an online backup service at Carbonite.com for less than 80 bucks a year for the unlikely event of a fire or theft.
I like to make notes, FIB levels and Elliott wave ratios on the various charts I use, so the backups are important to me. Even though I make notes on all my trades in the “At- A-Glance” daily planner that I use for my journal, I like to annotate strike price levels, entry points, stops and targets for the calls and puts I have in play on my charts. The artist in me also likes to draw out various technical price forecasting patterns on my charts. I may find a trade on a daily or 15 min chart but I like to pull the trigger on a one min chart to knock off the commission on an option trade. It’s amazing how often a Bull or Bear flag tells the truth or price breaks out of a triangle at exactly 1/3 from the tip. And the guy that’s in charge of Head & Shoulder patterns….. I sure hope they pay him more than the CEO of Bear Stearns; he’s earned it and then some.
I also make reference on my charts to the applicable online account I’m trading with. By referencing my notes, as I cycle through my current daily watch list, I can quickly see what the market is telling me about each trade. I guess I could use some of those trade from your charts tools but I’m just not there yet. I also use a little program called RoboForm to simplify the whole online trading password thing; and love the capability of having them on a secure USB jump drive for traveling.
I check briefing.com each morning prior to the open for an awareness of what the market futures portend for the day. My cell phone starts ringing with text message alerts soon after the open because I’ve set up a ½ dozen or so 15 day moving average cross alerts so I always get a drift of the markets direction when its on a roll. Don’t pay for these. They are free everywhere. You just need to know your cell phones email address. During market hours when everything seems to be under control and on trend I’m always sharpening the saw by studying the advice of other traders through online newsletters or webinars. I try to take a break, say 11:30 to noon thirtyish to do some stretching or get a little exercise.
If you don’t have the luxury of trading full time yet and still attend a job, don’t worry, trading can still be your major monetary interest. Relaxing and making all of your decisions off of the close works perfectly well. In the evening, before or after American Idol, I make sure to read at a minimum the first two pages of the online Investor Business Daily; it’s Big Picture highlights and markets section. I also like to skim through Robert McHugh’s daily market newsletter at technicalindicatorIndex.com.
That’s about all I need to feed my brain every day. I subscribe to and scan a lot of stuff to get good trading ideas. It’s not necessary; but I enjoy it. With sites like ours here at SelfInvestors.com you don’t really need to look very far. Tate does a terrific job of developing ideas. I like the challenge of taking some of his dogs and turning them into carriage horses with options trades. It seems that often just when he is bailing it’s a great time to get in with a put or a call. I actually bought a stock the other day. Well it was almost a stock err… ETF is what they call them, I think. What ever that stands for.
If you are convinced that the sky is falling, and that no one on Capitol Hill deserves to be there, check out EEV, FXP, TWM or QID. BUT… be careful here if you are an options trader. Follow your checklist and make sure the Bid Ask spread is manageable and the open interest is above 100 for the particular contract you trade. Some of these are pretty new and thinly traded if at all. Don’t forget to buy enough time to hit your target. Being patient and waiting for the correct entry will reduce the time you need to buy, and thus your risk. Look for a retracement to Support or Resistance, Low volume pullback or break out on 150% of daily volume.
For fun, you might try analyzing an upside down cup and handle base. In my new book, I call it a “Pineapple Upside Down Cake”. That used to be my favorite when I was a kid; but you know, today, I still have a hard time getting my head around playing the downside even when my check list tells me I have a winner. So in a downtrend I raise my comfort level buying and selling Calls on UltraShort ETFs.
With rate cuts like automatic weapons fire, 200 billion dollars a week bailouts and no M1 in sight or in the public’s pockets; Boy! are we going to have some fun this summer! I wish some one would tell the boyz that if they don’t have any of our money left, its OK to go out of business. Don’t they realize that we have already taken ours out to pay for gasoline (energy) and food? Which by the way, under the “new rules” are excluded from CPI inflation calculations. Next thing you know, they’ll exclude the equity in our homes. OOPS! I think they already did that by prematurely raising rates to begin with.
Can you imagine the inflation indexed pay raises all government workers would get if food and gasoline were added back into the CPI. Who is in charge of that anyway, the same guy that runs Bear Stearns?
Wow! Have you checked out the new IPO resource Tate put up on the site? In a word…AWESOME!
My wife and I and my 15-year-old daughter have an understanding about market hours; when I’m at my desk and the charts are flipping around like fish out of water, they keep the interruptions down to a low roar. I actually think that working in the midst of family activities gives me a better perspective as to what my job is all about and why I’ve chosen the path I’m on. Even though I consider every trade I play to be a living breathing entity, subject to every law of nature, when one is surfing the market, it’s nice to be reminded that meaningful life is all around you and that the kitchen is only a few steps away.
Cheers, 2Dimes / Barry Brush
To contact me send an email by using the Contact form (link above) and Tate will make sure I get it. The best option is to submit your comment to the blog here