Monday, January 08, 2007

Total returns: negative $520, made 500 on put warrants

Later in the afternoon, I went in for another trade. This whole day, I've been buying puts and not calls because I feel that the general direction of hsi today is down.

I bought and sold my put warrant in less than 10 mins to earn around $70 more. The money is not the point, the experience and confidence gained in following your analysis is the ultimate gain. Let's look at the reasons for the trade:

1. I bought at the blue arrow. At that time, ema finished its peak and is going downtrend from there. Furthermore, hsi price went below ema trend line, which is a bearish sign

2. Looking at stochastics, the %K line and the %D line had peaked and had gone down. It would be better to buy a few min earlier when they are at their peaks, but as I've said, today i'm not in a mood for aggressive trading. So, I waited for the downtrend to confirm before jumping into the trade. The downtrend in stochastics is confirmed decisively by the steep gradient, which means it's not likely to rebound. Notice %K is below the %D line, another bearish sign.

3. RSI had recently peaked. As in stochastics, it would be a better idea to buy puts at the peak but I would wait for confirmation before trading (for today, haha!). Confirmation is by the fact that rsi trends down (steep gradient somemore) and doesn't show sign of reaching its minimum and U-turning.

4. This short interval of time presents one of the best opportunity to buy puts because all the signs points that hsi will go down. RSI trends down, stochastic trends down, %K below %D, ema reached peak and turning down, price below ema. The probability of failure in this trade is actually very low. I jumped in with 20 lots straight.

The problem comes with my selling. I was bugged by the fact that dbs website is not stable, so rather than wait for the correct sell signal, I jumped the gun and sold sooner than I would have in better environment (connection wise). If you notice, I sold immediately when %K rises a bit from its minimum, and rsi rises a bit while on is downtrend. More imptly, I looked at the hsi price. The price is almost going to test the ema trendline (which acts as a moving resistance). The gear ratio of my puts is low, so rather than risk more downside to hsi price, I sold off my position and ended my trade there and then. It later rose up to 0.295, BUT I thought I took a good analysis of my rewards/risk and concluded its not worth the effort. No regrets there even if my puts price rose further.

After my expensive 1.6k lesson last week, I was in a better mental state. I'm very cautious, looking for confirmation after confirmation before trading. I keep taking stock of my mental state before I go into a trade: am i tired, desperate to make more money, crazy?

Analysing today's charts, I drew an important conclusion. The best time to make the trades would be the green arrows A, B and C. These represent a very strong probability that hsi price would go downhill (which it did), for reasons I mentioned earlier. I did wanted to get into puts at C but again dbs froze and I waited for like a min or 2 before deciding it's not worth it anymore. Opportunities to buy, if passed, will come again and there's no need to fulfill a trade because the situation would have changed in a matter of seconds for warrant trading.

All in all, an excellent trading day in terms of learning value. I earned $500 today in warrants. Overall, longcheer fell (which I think is good so as to touch the support line and fly from there) and dragged down my earnings a fair bit. Pac andes fell too. Yellow page went mad and jumped 0.070 to 1.38. Utterly crazy!

Total returns: negative $520

I heard tmr china insurance is listing on hsi. Should be having a strong rebound tmr. STI should rebound back after dropping 30 points to a nice 3000.00 today. Dow futures is positive. Call warrants, anybody?