After I post the question Should I Short Baidu at $318 on yahoo stock board I got an advice on the board that I think is an honest opinion and worth to think about. It is from a trader with screen name jlin303. I wish the answer can be post on this bog so I quote the advice here. And once again I am grateful for the advice.
Well, I certainly wish you the best of luck. Just one last piece of advice.. I’m sure there are day traders here who make money by day trading their instincts and feelings but I, for one, am a system trader. I’ve spent many hours researching various technical and fundamental indicators, programmed a system, and then spent many more hours back testing and refining the system until I felt comfortable with the win rate, draw downs, and many other factors. I use a Kelly Criterion approach to size my trades and it’s been working well for me.
Here’s the thing: after reading through your blog, I don’t think you can honestly say you’re a long-term winning trader, in part because you’ve lost so much, and also partially because you just don’t have a long enough history to say confidently that it’s not because of variance. I suggest you look long and hard at a systematic way to trade, whether it’s through automation or manual trading. You need very specific (and proven) sets of rules and then you need to stick to them. Asking people on the boards is not the ticket. “I want to short BIDU because I FEEL it’s gone up too much” isn’t a specific proven set of rules. If you put on this trade, do you know what your chances of making money and losing money is? How much should you risk (stop-loss)? What is your exit strategy if you make money? etc.
My answer would be something like “I’m shorting BIDU because the price fell below the 5-day and 10-day EMA today on heavy volume. My research has shown that in the last 5 years, when this has happened, it goes down 10% on average about 70% of the time and it goes up 3% and average of 30% of the time. My bankroll is XXX so based on the Kelly Criterion, I’ll risk YYYY to make ZZZZ dollars. Once the price crosses the 5-day average again (moving up), I’ll be out the trade. I expect to make TTTT amount of money in the long run by putting on this trade, based on historical results.”
You seem very genuine in your quest for knowledge so I broke my silence to talk to you. Usually, I would just browse the boards for a light chuckle at those pumpers and bashers who make ridiculous farcical comments and then try to substantiate their positions by making outlandish claims about the size of their trading accounts and how much they’ve made.
This is my last post on the subject so good luck and never stop learning.
I came across a blog post that talked about foreign currency trading basics. The following is a quote from the post that I found extremely helpful.
“Abandon all notions of getting rich quick. Because of leverage and due to the fact that even a broken clock is correct twice a day, the FOREX market can give you the illusion of being able to make a huge amount of money quickly. The market can randomly reward you for bad trading behavior. Until you execute your bad trading habit one too many times and the account proceeds to blow up. Capital preservation is critical simply because you need enough time to be able to discover those “bad trading habits.” Go slow. Preserve your capital. Learn the fundamentals. Achieve consistency.”
I found that if I replace the word “FOREX” with “STOCK” then it perfectly describes what I have learned from my past couple months of stock trading experience. It is a very concise summary of my “Stock Trading Lesson Learned” Category”. I couldn’t agree with this more. I guess FOREX trading 101 equals to stock trading 101.
When I find comments on yahoo stock board compelling I tend to remember them and see if they can prove itself true down the road. Here is one I found
I think Financials just want to stay afloat until the second quarter so they can hide behind their inflated earnings. But they will have to show their hand within the next two to three weeks or so to offer investors some guidance. If that guidance is cloudy, I believe financials will sell off before the 2Q earnings come out in Mid-July onwards.
I expect the 2Q earning statements to be very confusing and investors might take some time to digest them as they try to determine what are true profits and what profits obtained from the mark to market accounting rules. If investors do quickly react to the ‘positive’ news and jump in , financials will go up until investors wake up and notice they have been duped or have misinterpreted the earnings and will sell off.
Point is financials are not going to be truly profitable for a long while. Call me a short if you want but these are facts. Credit defaults are on the rise, foreclosures are on the rise, job losses continues and now interest rates and gas prices are on the rise.
Original is from this thread:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_B/threadview?m=tm&bn=1903&tid=1025357&mid=1025357&tof=-1&rt=2&frt=2&off=1
I tend to believe what it says here as the accounting rule changes really smog the finanical picture of the Banks. As I mentioned before the only indicator that the banks are back to normal is that they start increasing dividend payment. I guess that is still one or two quarters away for the banks that are able to repay TRAP.
I recall one of the small banks that I trade on OZRK. It seem to me a very well managed bank. It recently come down a lot because of a real estate loan went bad. But looks like its resistent is at $20 ~ $21. I want to remind myself that its current price may be a good entry point. But again the volumn on this stock is quite low.
The following is the reasoning behind Bank of America’s upgrade by Goldman Sachs and Morgan Stanley which is posted in yahoo message board by a person named Perry, screen name tothemoon8. It seems to me it is from a professional analyst’s mind and I found it is quite convincing. Of course I buy into his view because I am holding 4000 shares of BAC. The strange thing I feel is I should’ve read it from news release of Goldman Sachs or Morgan Stanley instead of from Yahoo message board. Anyhow it found it help me firming my mind. I will certainly hold.
BofA, according to Barrons, orchestrated a brilliant stock sale to raise the capital that was mandated by the FEDS. Apparently a tremendous number of mutual funds and hedge funds were interested in the offer which required a minimum of 1 million shares purchased and BofA sold these shares off the market so that it does not disturb the stock price. Next, they rejected the stock issues to any funds that had shorted BofA in the past year (call it a pay back if you will) and last they require the purchasers to hold the stocks for a substantial amount of time.
According to Goldman and Barrons BofA’s stock offerings will conclude and finalize by the end of today. By next week BofA will announce that it has raised over $25 Billion from it’s stock offerings and asset sales which with the earnings that they have ear marked will close the gap to their $35 Billion capital requirments. Here are some interesting facts:
1) When BofA took over Merryl they also inherited 51% of BlackRock Group which manages over $1.3 TRILLION in assets. Imagine the fees collected annually on this amount.
2) BofA could easily say couple of years from today complete an IPO on Merryl again and hold 60% majority stake. This will make BofA and its shareholders an astounding stock price gain.
3) Over ONE THIRD of all daily ACH transactions completed in the U.S. goes through BofA.
4) As of today BofA has a nest egg of $178 BILLION for loan loss provisions and cash. When in the near future the economy turns around, unused loan loss provisions have to be accounted backward and be recognized as earnings… this is the event that will take the stock to $40 level and beyond. Which is why Goldman has now added BofA to their conviction buy list and Morgan Stanely upgraded BofA with a $32 price target.
5) BofA is still tracking a $38 Billion + quarterly revenue for this quarter which will net them between $3.5 to $5 Billion in income again which is massive by any standard. Why? They are borrowing money from the Fed at ZERO percent rate and lending it out at 500% to 600% profit. Also, the mark to market accounting rules all but gone, BofA and other banks get the breathing room to recognize the loss of some assets over the next few years as their earnings and income pick up momentum and off sets those book value losses.
It is from If you are longs check out this facts
