January 27, 2020 Earnings Reports, Short Squeeze, Market dump, Fed statements

The day was filled with excitement.  Short sellers were still trying to cover their shorts with stocks like GME, BYND, and AMC.  These small companies jumped nearly 200%.  Money was definitely flowing towards these shorted companies.  As a result of this and along with earnings, money was flowing out of the large caps.  

With MSFT and AMD reporting this morning and FB and AAPL set to release report in the after the market close I knew today would be very choppy, but I had no idea what the actual story would be.  That was the major reason I took profits yesterday.  The last week of January and early February is both very exciting and scary.  

I have lost a lot of my gains during this time period.  In previous years after a huge run-up, I usually gave it right back due to careless (cocky, overconfident) trading.  This year, I worked with my own emotions and sold off before earnings.

Market Psychology:  The bull market is easy to make money.  It's during the choppy sessions that makes it very easy to lose money.  So how do you set yourself up for success?  Trade when the market is easy and sit out or trade with smaller position sizes when market is unsure.  

Again, trading is different from investing.  Investing is for the long term.  I have a large percentage of my account in funds and ETFs.  I set it and forget it.  But when I am actively trading options, I take into consideration the current conditions of the market in order to size my positions.

Today's S&P map was mainly red.  What do you do when NASDAQ is down 2% or 3%?  Do you take the loss, do you hold on for dear life?

As choppy as this was, being on the sidelines helped me have clearer thoughts.  

I was pretty content with my run-up from January MU earnings, INTC, FB and AAPL move.  I sold for a very large profit and decided to sit out.  But what if you were not in cash? What if your option lost 20-30% or more today?  

If it hit your stop loss, you need to sell.  There is nothing wrong with selling and taking a loss.  You could always buy back later at a lower strike and increase your probability of success on your trade.  

Should you buy more?  I would wait until the dust settles just a bit.  Signals have changed, supports have been broken, I would wait until price stabilizes.  Never ever catch a falling knife!

Good luck trading.  This is one of those days I would just like to sleep in and forget it ever happened.  But as master Yoda would say: Face it, you must.

Earnings Edition: FB and Texas Hold'em

With powerful earnings from INTC and an almost 400% return in AAPL January options.  I opened a play in FB.  FAAMNG stocks were back in favor around the 2 week of January in anticipation for earnings.

I opened a position in FB 270 expiring January 29 in anticipation of a run-up to earnings.  I also plan to sell day of earnings on January 27.  This has been a very easy way to skim the surface of earnings without actually having to risk the volatility crush and earnings disappointment.  

There is a feeling of missed opportunity every time it sky rockets (FOMO), but I have also experienced risk of earnings disappointment and great loss, especially in Facebook.  When looking at earnings, I have to both maximize gain but also minimize risk.  

So for this tutorial, I bought FB the Friday before earnings (5 days before earnings).  I watched it go up and down.  The dip on Monday scared me.  This lasted between 11-11:10am which was so fast.  But the recovery in the afternoon has been remarkable.   

Imagine a game of Texas Hold'Em or Poker.  You can't make money unless you're in the game, but you can't always win them, people can bluff you, you might hold a weak hand, your opponent might have a stronger hand, but in Hold'em you also have the random cards the dealer flips over (the Flop, the Turn, and the River Card).  Sometimes those cards can help you out, other times they don't.  But you won't know unless you stay in the game and call at each turn.  

Holding options until the day of earnings is similar to that.  Each day as you approach it is like the Flop and the Turn cards... and the day of earnings is like betting on the River card.  In most instances this is a 50/50 endeavor.  But in order to see the Flop and Turn, you gotta be in the game.

My plan is to sell on January 27 right before closing.  I have also noticed that most stocks rally at the close especially into earnings.

Coaching Lesson #1 You can't make money unless you're in the game.

Coaching Lesson #2 You can make lots of money on risky bets, but the inverse is also true (you can lose lots of money on risky bets).  Minimize your risks.

Fake Outs and Stop Losses

As a retail trader, one of the big lessons they teach is to always have a stop loss.  Whether it is 5% or 10%  or some other support, you are told to always have one just in case there is a huge drop.  

But for some reason, I think there's also a computer algorithm that has an alert when there is a huge spike due to stop losses being triggered.  Case in point yesterday morning around 11:00-11:10.  There was a lot of selling and the huge spike down triggered some stop losses.

 

The question:  Did you get stopped out?  Did you take profits earlier when the $AAPL was going higher?

Because earnings is in 2 days, I have been planning to take some profits.  With the big jump and subsequent run from 9:30-10AM, I was able to take 1/3 of my position off.  Between 10-11 when things were fraught with indecision, I took another 1/3 off.  

When panic hit between 11:00-11:10 where were you?  Did you stay by your computer, did you take a break?  Were you ready for the rally at 11:11?

If you stayed away from the desk from 10 until close you would have missed the excitement and the takeouts.  As a retail trader with a day job, its easy to get caught up in the excitement, but their are greater powers at work.  There are professionals and millions of other traders or SHARKS that will eat you alive.

These fake outs are meant to shake out the weak hands.  They are meant to scare the pants off of grown men.  As a retail trader, you are being seen as a fish bait, chum for the sharks to eat alive.

Coaching tip: Don't watch the screen all day.  Have your plan, know your stop losses, and remember to stay sane in this market.

Don't let the ups and downs of 10 minutes of the day ruin your plans.  God bless and happy investing!

5 Lessons Learned trading in Jan 2021

This has been a fun month of trading.  Here are some lessons learned from trading.

#1 Stick to your plan.  Always have a plan.

What is your entry, exit strategies?  What is position size?  What is strike price and expiration date?

#2 Let your winners run by having a plan.  What is your target price?  

My example is $INTC.  Right after CES $AMD dropped and $INTC jumped big.  I sold after the first jump of about 3%.  My options were about 50% profit, but the next two days but then it went up 7% and 13%.  I left another 200% on the table.  Sure I got profit but ended up missing out on an incredible run.

#3 - Cut your losses or reposition your strike prices.

I picked up some $AAPL options 2 weeks ahead of earnings.  I readjusted as it started losing and picked up at a lower strike price just so I can get a good position.  

I cut my original options so I could buy back a better strike.  All these options expiring on Jan 29, the same week as earnings report.

Which leads to my #4 lesson is stick to your strength.  

A friend asked me what is $AAPL story?  Meaning what are its fundamentals?   Unfortunately, I am a technical analyst.  I know the M1 chip is revolutionary.  They are dropping their Intel chips and building their machines with in-house cpu and are destroying Intel machines benchmarks.

But that type of analysis isn't my strength.  I enjoy looking at technical analysis.  I see $AAPL retesting the $127 line.  I also see $140 target before earnings. Meaning: there is usually a run-up before earnings testing previous highs.  So in my mind, there is $13 move in the upside in two weeks.  If it breaks down, I will sell for small loss, but if it confirms, I'll make a decent return.  

What are your strengths?  Is it options, is it technical, is it following trends?  Know what your plans are and don't be derailed by doubts or other people's strategies.  Know your strengths.

#5 is my long time lesson which is don't hold short term options through earnings.

Always have a plan.  Earnings provide the biggest gains and losses.  Unfortunately you can't predict which way the market will go.  As a general rule I sell my options before earnings to avoid the volatility crush that happens after report.  I sold MU day before earnings and took my profits.  I played NFLX right.  So 2 days before.  I sold 80% of my INTC and got crushed with my last 20% that I held through earnings.  There was a leak with INTC and earnings came out early.  I thought I was riding high at 3:58, but after hours, it got crushed and ended up down 9% the next day.

SO, have a plan.  Know your environment.  Start trading so that you can reap a large harvest.

God bless!

New Day, New President, New Year

New year, new president and the market continues to run.  As a swing trader, always remember the trend is your friend.  As long as you respect supports and resistances, there will always be another day.  Be sure to stick to your plan and follow your goals.  Lock in profits when you achieve your goal and cut your losses when you are wrong.

My pickups last week included $AAPL $NFLX $BABA.  With $NFLX hitting for the fences, FAAMNG is back up.   Looking at Semiconductors this week $AMD $INTC $ASML $MU

Remember the long game.  Investing is for the long term and not just day trading.  

Observe and till the landscape (look for market trends). 

Plant your seeds today (Open Positions!!).

Wait and weed (With patience and a plan, have a stop loss, add to position, etc)

So that you can harvest for the future (take your profits!).