"Life is a Microcosm of Daytrading"
Trading stocks opened a whole new can of worms. Looking back, I really didn't know what I had gotten myself into. Greed, Discipline, Fear(rarely), Envy, Regret, Resilience. Stock trading changed my life and affected my career. I got hooked into trading my junior year and never looked back. Stock trading made my senior year in college a thrill a minute. Daytrading has a specific meaning, but back then, it was just anybody who had an online account or was trading in one of the daytrading shops who traded frequently. It didn't mean you were just trying to scalp for 25 cents on each share you traded, or couldn't hold overnight positions. I was trading everyday but was not what you would call a stereotypical daytrader looking for a lot of small moves and making 20-50 trades a day. I usually made anywhere from 1 to 10 trades a day. Sometimes no trades in a day, rarely more than 10. Here is a journal of my individual trading as well as some events that occurred at that time.
12/97: Journey Into the UnknownIt all began so innocently. My brother had seen an advertisement for online trading by Ameritrade offering discounted commissions of $8/trade. I didn't even think about investing my money at that time, for a couple of reasons. First, I didn't think that it would be feasible with the amount of money I had and the current high commissions which I thought was out there. Second, I had lost a ton of money(thousands of dollars) in casinos gambling way more than I should have. I remember going into debt in my checking account due to casino gambling losses and being somewhat depressed about it. It had really worn me down. Foxwoods, Mohegan Sun, and various Mississipi casinos had taken their fair share from me without mercy. Blackjack and pai gow poker at Foxwoods, blackjack and craps at Mohegan, and blackjack in Tunica, MS. I had terrible luck, because I knew I wasn't THAT bad a player, but I would lose almost every time. I lost $3000 to Foxwoods and Mohegan in a span of a couple trips in the spring of '97. It stung, but I was young, so I got over it fairly quickly. However, during Christmas time, I was able to accumulate enough money so that my brother and I could open an account for $8,000 in Ameritrade. I was excited. I was going to be able to make money on investments for the first time and win back what I lost at the casinos. That was my mindset at the beginning, and it was something that I was eager to get involved in. I bought investing magazines like Smart Money and read it like it was a bible. I was confident that I could get a good return, thinking, hey 50% return in a year would be great. I was in for much more than I bargained for. Without a doubt.
01/98: Testing the WatersThe Ameritrade account was opened mid way through January and I was excited as ever. I didn't care about anything else at this point, and I neglected looking for a summer job. However, this new year would turn out to be special. I experienced new things and faced new situations that I had not dealt with before.
My brother had his heart set on TDFX, a video chip maker, popular with gamers, and I agreed. It looked like the stock was strong with good earnings growth, a good product, and even the well-known Motley Fool website was in favor of it. We immediately bought 200 shares at around $25.50/share. What else could we want? In the never-ending search for higher returns, I looked for smaller cap companies that I thought had potential. Then, I noticed one day, that a stock called LCAV had skyrocketed for a couple of days on good volume. I jumped on it in my newly inhabited room that I moved into, and I was on my way to cyber-investing. I bought 1300 shares at an average price of ~$2, which would end up seeming to be a lot, since it would head down lower and lower. One good thing was our risk profile was relatively low, so we were not in danger of losing too much money since we weren't on margin. The Suretrade account would forever change our view on margin.
02/98: Just a BeginnerThe Suretrade account was opened with the help of my brother's funding, which he provided by putting in $6000 to open that account. We felt like Suretrade, at $7.95/trade for both market and limit orders would be a bargain and would provide us with another broker to use in case Ameritrade wasn't satisfactory. Not much occurred during this month, mostly just holding what we had and keeping up with the market. We were investors, not traders, and were in it for the long haul. Oh yeah, this was the month that I dislocated my left kneecap playing basketball, which was the worst injury I had ever suffered. It was a gruesome scene on the basketball court, my knee looked complete deformed, with my kneecap turned sideways! People were standing around at the gym gawking at me because I was in a lot of pain and had never seen such a freak accident. It actually was better news than I had thought, I figured this was one of those 6 months to a year where you can't walk normally injuries. I had to use crutches for the next month and a half, and it was really annoying since I didn't have a car and it was a 20 minute walk to school, or a 5 minute bike ride. Kind of hard to ride a bike when you can't bend one of your knees.
03/98My brother decided to go for some more stocks in this account, he bought some oil stocks like SEV and GLM from recommendations from his friends. These stocks did not perform well, but they didn't really perform too poorly, either. We sold out of both stocks with small losses, and bought a little bit of LCAV in the account. Not much happened this month, just sitting on our hands waiting for these stocks to move. I took an eventful trip to Panama City for Spring break so I really couldn't do any trading, I was just holding. I went on the trip despite having to wear a knee brace, and still having some pain in the knee. I had a great time, especially at this huge club called Club La Vela. I met this female international student there, its a long story....
04/98: First Sign of LightFinally in April, we had some movement in these stocks, first by LCAV which was caused by positive announcements by the company on revenue growth. The stock gradually worked its way over $2, and then one day, it went from being around $2.50 to over $4.00 in a matter of a couple of days. It was virtual explosion in the stock, I checked the quotes at an Athena computer terminal at school and was shocked, I immediately sold the shares, but held it in the Suretrade account. I had made about $2600 on the stock, and I was feeling great. It would drift back down to around $2.50-$3 after a few days, but it didn't matter since I had already sold. The other big news for the month was the TDFX earnings announcement, which came in with expectations of $.20 earnings for the quarter. It blew away the numbers, like I've never seen before, coming in at $.50. The Motley Fool website went crazy, with one poster saying "I've got my space suit ready. Ready for blastoff. 10,9,8,7,6,5,4,3,2,1..." The stock exploded on the news, shooting up to $35 from around $28, before settling down at $32. It seemed weird, but the stock didn't act great after the news, and I expected a bigger rise, but it never came. It steadily went back down to $23 in a couple of weeks, and was well off the price before earnings came in. We were shocked at this outcome, but it was an important lesson on reading the tape, and not falling in love with a stock. I also went to an interview at JP Morgan, for a summer internship in investment management, and was surprised that I got the interview. I was even more surprised after getting the job offer, relieved that I would have a real job this summer. I guess I knew what I would be doing for the summer.
05/98: A Preview of the Next 2 YearsThe market was abuzz with internet fever. Everywhere around you, the internet seemed to be the next big thing. It was the new form of mass multimedia, a flow of information both convenient and easy to use. It was no coincidence that what happened earlier in the year with internet stocks growing wings, came back to surface as low float yet high market cap stocks like AMZN and YHOO started going gangbusters. There was no stopping the momentum, new investors, with daytraders piling in everyday to try and catch the ride up. In this maelstrom of internet fever, I decided to get my hands on AMTD, the online broker with the aggressive ad campaign. It seemed with the rapid growth in online trading and stock gamblers, the brokers would be big beneficiairies, as I was one of Ameritrade's favorite customers. The stock was bought in May, waiting for it to pop higher, and it did start to rise, we held on for the stock to really lift higher, and it did show some strength. The only problem was that we were buying something which wasn't as abuzz with hype as some of the portal stocks or the e-tail stocks like AMZN. Thus, despite all the optimism over internet stocks, I had actually managed to pick sort of a loser among the bunch. This was highly discouraging, considering all the opportunities out there in the open field running that was the world of low float internet stocks.
06/98 - 08/98: I am HookedThe school year had ended and I was in NYC for the summer working for JP Morgan. This was quite a new and unusual experience, I had never really had a real "job", not that I hadn't worked before. It was the first time I actually got a job where I actually had to give them a resume to apply. The previous summer jobs I had were fit for high school dropouts, misfits, and those that were proud of getting a GED. At this time, I was down a few K since the inception of trading in January. The losses could be attributed to TDFX, mostly. I couldn't go full throttle now since I had a job to attend to. But I did manage to make a few trades. At this point, stock trading turned into a bit of an obsession, although I really didn't have much of an outlet since I was at work most of the time when the action was happening. I did check the quotes on Bloombergs quite a few times during the day, along with a co-worker of mine from Princeton who had this obsession over his small caps. He would brag about how his stocks outperformed the market, etc. He was cool though, said that people invest in stocks to get rich, and invest in bonds to stay rich. One of the stocks that I stumbled upon was BVSN, an enterprise website software company. They were actually profitable, which was unusual for an internet company. And the stock had made a strong move up, and seemed to be poised to rocket higher. I bought the stock and held it for a few days. And then it made one of those classic internet pops one day, and I quickly sold. Unfortunately, I sold too early. But I was happy, and had made a few K in only a few days. I tried my luck again, this time with NTKI, an internet music retailer. Now this one was a huge dud. The stock went practically straight down after I bought it, and I took a huge loss. TDFX was another stock that went down big one day, and tempted suckers to buy, and I took the bait. It went further down and I sold and took my losses a few days later. All in all, a bad summer of stock trading. At this time, me and my brother decided to add more money to the stock accounts.
On the positive side, the summer was an educational experience. I was with the quant group in the asset management division in midtown NYC. There was a lot of turnover there for some reason, and I began to notice some things. All of Wall Street is driven by $, and people are always looking to move into a position where their earnings potential increases. Asset management was relatively low stress among all the Wall Street jobs out there, but with that came relatively low pay. It seems that quite a few went on to the sell side (sales and trading) or to hedge funds, which paid more, but were harder jobs to get. Near the end of the summer, JP Morgan gave those who wanted a full time job an opportunity to interview for a position whereever they wanted. I decided to interview for the sales and trading position, and went to downtown NY. I think my intern director was disappointed in me, but I didn't want to stay in this laid back, low potential environment. I wanted to go where the action was, so to speak. And that was downtown. One thing about NYC: don't buy those fake Oakley shades or Tag Heur watches. I bought a few and they either broke or kept completely inaccurate time. One of the watches did actually work, but I bet that would only be a very temporary phenomena.
09/98: Going Down with AsiaAfter a nice trip to Las Vegas and Los Angeles with the family, it was back to school for my senior year. The stock market had gone down during the vacation and during the rush/orientation week. I had held FGCI, a golf center company. Fortunately, I sold for a little profit before it took a dive. Now was my time to make a comeback. I was about $10K in the hole from all the poor trading done over the past few months. It seemed hopeless, but I was persistent in trading and did make a quick trade in BVSN for a small profit right after rush. It was also during rush when the biggest down day of the year occurred. The Asian crisis had finally caught up to the domestic market and the Dow went down to 7500, and the Nasdaq went all the way down to 1499, from a high over 2000 during the summer. The tech stocks were hardest hit, but it didn't last long. The very next day, the stocks went right back up and would continue to do so until the beginning of October. During the month, I began to focus more and more on beaten up stocks, like PAMM and even BVSN, which took a serious dive during the month. I never was able to make money on those beaten up stocks, and the account eroded further. At one point, I was down by over 50% from inception. Things seemed hopeless. The only thing keeping my spirits up was a relaxing and enjoyable senior year, which was good distraction from my intense focus on the stock market.
10/98-11/98: Crisis and ResiliencyWell, what can I say about this period. The Asian crisis turned into a worldwide crisis as credit spreads exploded higher, and LTCM imploded lower. When a company like LTCM trades with such huge leverage on spread trades, it usually works, but sometimes, it doesn't matter if you are hedged, the markets are irrational in the short term and illiquidity is the norm in crisis situations. LTCM was like a giant elephant stuck in a jail cell with enclosing walls that give it less and less room as time passes. I wouldn't realize how crazy and important these days would be until I looked back later, but I definitely missed some opportunities due to my lack of experience, especially in stocks that rebounded hard like BVSN and the other inuts (internet stocks). I didn't know how to trade internet stocks / tech stocks effectively, and that was the best way to profit during this time period. I missed a lot of opportunities shorting just because I had the wrong broker which didn't have shares available to short, and missed out on shorting BAMM, MALL, etc. My brother and I made our final deposits for the year into the stock accounts, bringing our total to $30K invested. During this time, about $10K of it was gone, but I felt like I could win it back and was focusing on just getting back to even, like a compulsive gambler. I remember going to Chemical Engineering lab and talking with the lab assistant about stocks and checking stock quotes with the lab's computer when I should have been looking over my experiment. He was into a biotech stock called ISIP (Isis Pharmaceuticals), which had antisense technology. Those were the days, when I was young, innocent, everything was exciting and new, and I was caught up in this dynamic market.
12/98: SKYM - Flying HighComing up on almost 1 year of stock trading, I had finally come to realize that I had to do something different in order to make money. But before that time would come, I was still doing my usual daytrading routine. Looking at a few stocks that I was familiar with, buying and selling a bit later for a small gain. I wasn't thinking big, although I would have occasional shorts (selling short a stock is when you sell a stock first, and make money if it goes down, lose money if it goes up, and buy to cover later to close out the position), I was mostly trading long (buying and selling) and trying to make a couple of percent on each trade on these highly volatile internet stocks, which only seemed to go up and in big chunks. After I had finished final exams and was able to go back home for the holidays in Atlanta, I read a couple of trading books, one that stands out is The Electronic Day Trader. It actually detailed how to read market makers and the Level II screen, as well as recommending general trading strategies, buy strong stocks, sell weak stocks. I didn't really follow the books advice, but it did open my eyes a bit into how other daytraders were thinking and how they tried to succeed.
On to the main point of this month's entry. I finally discovered my main method of profiting from the stock market. I cannot emphasize enough how much I learned this month and how it would change my whole view on trading stocks, adding a huge element of risk and reward to my trading. It all began when I started looking at the daily percentage gainers list to keep an eye on those stocks that were up the most for the day. On Monday, December 28, I ran into this monster of a stock called SKYM which was heavily daytraded and looked like it had gone up too much, and was trading wildly. SKYM was a so-called play on e-commerce, as it was an in-flight catalog retailer which had recently launced their website, www.skymall.com, which was focused on internet sales of their products. A Press Release (PR) proclaiming an increase of 600% in Internet sales over the past year was all that was needed to fuel the frenzy in this stock. I first shorted 1000 shares of this stock at $34, going out on almost full margin (2 to 1), Only to lose over $4000 on this stock in 20 minutes when I covered at over $38! I was trading on pure emotion at that point. I wanted to get my money back, unfortunately, I had to reduce my trading size because I had just clocked my account by over $4K. So I decided to go long just temporarily and bought 700 @ avg of ~ 39 3/8. In less than 15 minutes, I sold out of those stocks @ avg of ~ 43 3/4. So I made back over $3000 of my loss in that 15 minutes. From that point on, I only shorted this stock, which I felt would be the smart thing to do. I sold short 800 @ 42 5/8, and less than an hour and a half later, cover at around an avg of 36. For a gain of over $5000 in that time. Wow! It was a heck of a ride that day, Overall, I made a little less than $5K that day, which was my best trading day ever up to that point. I never had so much adrenaline pumping while I was trading stocks, my whole future was on the line at that point, and I had been able to profit from it. It made me realize that I was trading the wrong stocks up to that point, and decided to focus a lot of my trading on these so-called daytrading stocks, or more infamously known as Pump and Dumps. The rest of the week, I would wait for these kind of stocks to show up, wait for the upward momentum to die out, short after the stock had clearly peaked, just to play it safe. In what seemed impossible at the start of the week, I would double my money in the span of 4 days.
01/99: Playing Games with my MindI had a few days to enjoy the long weekend as New Year's was on Friday and I didn't have to trade again till Monday, 01/04. I basked in the glory of just doubling my account in the last week of 1998, when over the previous 51 weeks of 1998, I only managed to break even. As the year had gone by, you have a chance to reflect on the past year and look forward to a new year. I must say that my expectations from the stock market changed dramatically in one week. I no longer was shooting for annual 40-50% returns, but was thinking in terms of triple digit returns, not over a year, but possibly over a few months. I felt more greedy as my expectations shot through the roof. I was on top of the world, I had some crazy thoughts in my head now, I now thought that I could get rich trading stocks. I had found what seemed like a fool-proof way of making money in the market as long as the market remained active and internet crazed.
Monday was a continuation of the previous week, as I made more money, and decided to trade YHOO on the long side because January is usually a strong month and it seemed like a safer play for the internet mania. The rest of the week was steady, not making or losing much. I was still shorting the daytrading plays, along with occasional longs in internet stocks. The next week would be a roller coaster, as I entered the weekend with a fully margined out long GCTY (Geocities) position, which was an internet high flyer, trying to play the gap up the following Monday. It worked like clockwork, except I left a huge amount of money on the table, selling GCTY way too early, avg ~62, making about 11K on that stock that day, but it could have easily been double that, as GCTY closed at 76 1/8 that day! I could have made another 20K on that stock just by holding till the close. The market for internet stocks was nuts. Unfortunately that day, I started shorting a stock called PRFM, Perfumania, a company that launched an internet website to sell perfume. Come on! This was a joke, but the stock shot up like a rocket and I shorted too early, so I lost most of the money I made on GCTY, essentially making it a flat day. A roller coaster ride of a day that makes your stomach feel queasy, as I had some regrets about the lost opportunities on this day. I entered the following day, Tuesday, with a monster short PRFM position, which I told about to a good college friend who was working for a bank at that time. He was probably shocked I was carrying so much risk and told me via email 15 minutes after the market opened, "Please tell me that you are out." PRFM managed to squeeze My annals of daytrading will continuously be updated as it is a long tale of what happened and how it affected me.
Personal Trading Reminder
1) For extremely low volume pump and dump stocks, short on the 200-300% pop in the morning and hold onto it for 2 days. These stocks are ones with really low volume, then explode in volume on the day of the explosion. Cut losses if there is strength throughout the following day of explosion. I.E., FSTW during summer '99.
2) It is generally safer to short smaller cap stocks which pop up then larger cap stocks. Also, the lower the volume, the safer the short, although it will make it more difficult to short in quantity.
3) When a short is working for you, keep it overnight after the momentum has died down in order to profit some more. I.E., for CNTR, it peaked on Tuesday, should hold till Thursday instead of covering early after it drops down on Wednesday. Exceptions: When a stock drops more than 50%, recommend covering 1/2.
4) Consider shorting stocks in the after-hour market instead of holding it from the market day if you think the stock still has some momentum.
5) If a stock has built up momentum over a few days, it is generally going to have more staying power after the short squeeze explosion which occurs after this build up of momentum. I.E., POCI and IMON which became dangerous shorts due to its momentum buildup the previous few days.
6) It is generally better to short in the morning than in the afternoon.
7) Biotech small cap rises are usually short lived and good to short on the day of first explosion, and cover the next day or the day after that. I.E., ARQL, MCHM.
8) Pump and dump stocks with price declining 1 year graph charts are generally better shorts than those with price increasing 1 year graph charts, especially if the short will be held a few days.
9) Anthony@Pacific on SI is usually a good indicator of stocks which are running up on bs PR news and are generally POS stocks, and good shorts. However, Anthony@Pacific generally likes to short a bit early and scale in, so be patient in getting in on his picks.
10) In general, if a stock looks dangerous, it usually means that there is a lot of money which can be potentially made on the stock. Wait for extreme moves on these stocks during the 2nd day of pumping and then go for the short.
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