I don’t usually look at my trading cost. As long as I can make profit on my trading why should I care trading cost? But I don’t feel comfortable when I look at my trading cost since I started this blog and compare it to at my gain at the period of same time. I feel I should take some measures to lower my trading cost.
If you look at my May trading records the total commission I paid was $709.29. The gain I made was $3,324.08. The gain is already net the commission amount. So if I don’t need to pay commission I would have made $4,034. The cost percentage wise is 17.6%. I feel it is extremely high. So for every dollar I made I paid almost 20 cents to the broker and I have taken a lot of risk. The broker has no risk whatsoever.
I am pondering is there a way for me to lower my trading cost. I think that should be something I keep in mind next month. I don’t know what normal trading cost for the other traders. I would love to hear from you if you want to share. I feel 10% would be an acceptable amount. I know some of the broker charge less commission but I don’t really want to switch broker. I am so used to TDAmertiade.
Looks like the only way is to increase the profit for every trade. For a trading round trip the cost is $20. To make it 10% of the gain then my gain need to be $200. For 1000 shares of Bank of America at round $11 per share the gain per share need to be 20 cents or more. In my last month’s trading my initial bet on a trading day is around $7,000 on most of the days and I feel that was a bit conservative. I guess that’s why the trading cost was high percentage wise.
I believe I can increase my initial bet to around $1,1000 which is still fall into my trading guidelines. Also try to exit when there is over $200 in profit. It is hard though. We will see how it goes next month end.
Added on June 08, 2009
After I decided that I have to stick to my trading guideline I basically have to forget about trading cost. Don’t let trading cost as a percentage of gain get into your mind of deciding when to close a position. As long as I can make money net of trading cost it is good enough.
I maintained a long position of Bank of America yesterday because it was left out of the rally of the financial sector. I maintained a short position on US Bank Corp yesterday because it ran up 6.5% yesterday. It is not the first time I applied this kind of trading strategy. 
Long one issue and short another in the same sector. It turned out it was a good move.
The best scenario just happened at market opening. US Bank Corp retreated and Bank of America advanced. I net $260 right after market opening. Thinking back I should’ve double yesterday’s position. The down side with that was potentially low since USB ran up 6.5% in a single day and BAC had been losing ground for a number of days. The chance that they both move against me will be little. After all they are both big banks. If they both move in the same direction then I will end up making money on one issue and losing money on the other and my lost (or gain) is potentially limited. However in the case when they both move in the same direction I can take further measure like take profit on one issue, stop loss on another or increase holding on one of them etc.
Anyhow the situation of Bank of America and another big banks presented yesterday was a rare earning opportunity and I should’ve seized the opportunity and be bold on it. I was looking for more trades after the existing home sales number released and found BAC was trying to play catching up. I took the short side again and make a few more bucks. I wish I keep the short position on BAC till the end of the day. My account balance was up $325.78. It took me 2 days to recoup the lost on May 22th. It is a up day and it feels good not holding anything but cash
Account Balance Change: +$325.78
My prediction yesterday was right for the indexes but wrong on Bank of America and financial. The indexes are holding higher right now.
Bank of America was trading higher in pre-market. The highest price change hand today was $11.78. I waited till market open and I had the opportunity to sell at $11.65 at market open to net a profit but I was looking for higher. Financial stock were traded lower right now and they lost whatever percentage they should’ve lost yesterday. I lost big too. I sold 1000 share of USB at $18.20 and bought 1000 share more of BAC at $11.05. My BAC shares are all under water. Lost -$1,300 at 8:56AM.
Lesson learned, I have got to treasure selling opportunity. Goldman Sachs’ bump and dump skim on Bank of American couldn’t be more obvious. I should have sold them in pre-market. I could gain $600 but lost $1,300. What a day. Looks like I am going to hold over the Mermorial Day weekend. Hopefully everything goes well over the weekend around the world.
10:16AM:
Just add 1000 share more. Don’t feel good right after that. Now holding 4000 share at $11.25 average. The average offering price is $10.77? Hopefully that is the bottom and going up from today.
1:05PM:
Lost $399.44 at closing price
Account Balance Change: -$399.44
Act out of emotion:
I keep reminding myself that the most dangerous enemy is my emotion. But still I can not help being emotional today. When I thought about how Goldman Sachs manipulated the stock price of Wells Fargo and Bank of America for their underwriting job, when I thought about those so called influential financial analyst are only corporate puppets, when I thought about how investors are given investment suggestion without providing with sounded quantitative analysis my emotion and my angry build up.
What kind of investment environment this is. Investors are put into very unfavorable situation when they are not connected with one of those influential investment banks. And don’t think that the US market is big and efficient. It can be easily manipulated by a number of institutions. In fact this is where the systematic risk of financial system lays in. Company like Goldman Sachs, BOAC and Citi and Well Fargo should be broken down into small pieces. However the government is going about the opposite. It is trying to build up a smaller group of bigger 
financial institutions which can direct where the market goes on a daily based. Market messages are frequently miss-interpreted to suit institutional needs. I seriously belief some kind of mechanism similar to those preventing price fixing needed to be implemented into the financial system to prevent market manipulation.
Surprised Gain:
Anyhow my trades today are totally acts out of an angry and gambling mind. I covered my 1000 share of BAC short position at $12.08 and a few minutes later I took 4000 shares of BAC short position at $12.11. I set up a trade trigger to cover it once the ask price hit $11.80 before I left for work. I was preparing to get cooked again. When I was on my way driving to work I kept thinking what BAC’s price would turn out to be when I arrived at office. If BAC’s price was over $13 how much lost I have to suffer thoughts like that. Fortunately my short position was covered at $11.79 when I arrived at office. So I feel relief and my angry subside.
Reflection:
I start thinking probably my blog is not able to provide me the control I want any more. In just a few days after I set up this blog I starting acting out of the guidelines set forth in this blog. I have to admit that today’s gain is completely surprise to me.
I went over the exact same situation when Wells Fargo offered new shares. Wells Fargo’s stock was actively traded above the closing price in after market on the day it announced the offer at $20 ~ $22 a share. The next day Wells Fargo was traded higher in pre-market and it trended upward toward market opening. The same thing happened to BAC yesterday. It was actively traded above the closing price yesterday. It opened higher in pre-market and trended upward toward market opening. This was happening with the same pattern.
A vice strategy would be to go long yesterday after-market or to go long today early in pre-market then sell on market opening. If I went with that strategy I would net the same gain with a lot less money at risk. I actually thought about that yesterday but I chose to fight the tide because of emotion get involved. In any case I shouldn’t do that again.
Account Balance Change: +$508.51
Well that is what 
I feel and that is why I end up with a short position on Wells Fargo at the end of today’s trading. Well Fargo is the stock that I love and hate. I love it because I personally bank with Well Fargo for more than 10 years and I believe it is indeed providing high quality of services to customer. Wells Fargo acquired Wachovia and Warren Buffet recommended Wells Fargo more than one times in public as the best bank worth to invest. I recalled that was when its price was at around $8 and $20.
I hate it because it is the very single stock that caused me to lose over $9,000 in a single day and wiped out my three months of hard work. Yes just last Friday before I started this blog I took 3000 share of short position at $24.76. It was the day after Wells Fargo announced offering new shares at about $22. My reason behind this was new share sold at $22 and lower there was no way that it could be trading at 10% higher than the offering price given that Wells Fargo was traded lower than $22 just a few days before the offering. I was right in the early morning on 5/8. It ever went down to $24.45 but after that it went straight up to $28. I was nervous because I was highly leveraged when shorting these many shares. After keeping it over the weekend I covered the short position on early Monday 5/11 losing more than $9,000. Looking back if I were to keep it a couple days longer and cover it yesterday at close I could have made handsome profit.
The lesson I learned from this is that I have to have discipline in trading. I shouldn’t have put all my leveraged bet in a single shot even a good entry price is identified. If I were to short 500 shares instead of 3000 shares I wouldn’t have problem to keep it for a week.
Anyhow passed is passed. One of the purposes that I setting up this blog is to remind myself that the public is watching me and I can not behave like crazy gambler. I have to have discipline and I have to be persistent with it.
I made some trades on USB today and my account balance is up. Again I am going to keep my short position on WFC over night to see what happen. See you tomorrow!
Account Balance Change: +333.77
