Sunday, January 10, 2010

Excerpt from tomorrow's newsletter

Posting often within Twitter's constricting 140 character policy has made us want to write long narratives/ This possibly is quite similar to how a teenage girl who grows up in a strict family (and who wasn't allowed to date boys) acts when she finally moves out and lives on her own in a college dorm.

In bull markets anticipate the breakouts, wait for confirmation for the breakdowns. In bear markets anticipate the break-down and wait for confirmation for the breakout.

There are some stocks we like to day-trade and there are other stocks we know we have to give more room to and which lend themselves more to holding overnight. FSYS for us on Friday was a nice little day-trade (unfortunately small because stock is so thin) but CAT is a name which we were already long and did not daytrade at the number knowing it would whip us around. We are currently long QCOM PCU CVX CAT DTG MICC. We took some DTG off late Friday after the break-out as we're not crazy about the stock and don't really know much about the sector. We rarely put on full size on a stock we are not acquainted with or in a sector we don't follow.

When the market is rough we elevate our standards and only put the best set-ups on our platform. When the market is as benign as this one we loosen our standards somewhat in order to broaden the horizon of opportunities. This is an amazing market right now for traders like us in which every break-out can be anticipated -- if it works, great, if it doesn't work, just add more on the dip and hold as it will breakout the next day. We have no fear right now and we haven't taken a real loss for a long time. This of course is a very rare occurence. Right now stocks that are extended take a break while other stocks rally -- perfect sector rotation. When we start to sell off broadly across all sectors then we'll get cautious.

There is one thing we can tell you with 100% guarantee: this type of tape will not last. One day we'll get smacked in the face and lose a chunk of money as the dips cease to be bought but until then we hope to milk it as much as we can. To put it in simple monetary terms: one day things change and the dips you have been buying just keep going down. You recognize that the sentiment has shifted and you exit for a nice loss of 10G. However because of the way you have been aggressively trading in the previous weeks you're up 100G on the same strategy. So yes you got your head smashed with a big one day loss but overall the strategy worked handsomely. The biggest condition of course is to know when the sentiment has changed (instead of just doubling down) but that's also where we come in to help. How will we know? Because of the base. Everything we do always comes back to the base. Our entries are never on top of extended moves. We buy near a base, we add on dips near base support zones -- and if the base goes, we take the loss. We don't freeze, hesitate, or change our strategy. It's simple -- 10 ninjas surround you in a dark, isolated alley and give you two options: they cut off your pinky or they cut off your legs and arms. As much as we hate the thought of the loss of our pinky, we don't hesitate in our decision. Ninjas, thank you for giving us a choice. Please proceed in cutting off our finger.