DAYTRADING: The Highs and the Woes
I just returned from my weekly session with my shrink, the garrulous but never sanctimonious Doc Kronkite.
I must report that the session did not go well. The Doc spent most of my time railing about Mendelbaum the fund manager who put him into stocks that dropped faster than apples heading toward Newton's noggin...PCLN, DELL, IBM and NTAP and which led to the Doc getting a margin call.
The doc wanted to know why I was a daytrader. Worse, he wanted me to show him how to daytrade. A daunting task, but I sallied forth.
"See doc" I began "I used to be a believer, like you. I bought stocks when Harvey my broker called to tell me that some company was just "upgraded" to a Very Strong Buy by an analyst who toiled tirelessly at a prestigious brokerage house.
"Where'd it close yesterday?" I'd ask Harvey.
"$75" he'd say.
"Where is it now?"
"$78 and looking strong" he'd say, "and they're looking for it to hit 125" as he began to write up a buy ticket.
"Buy it! Buy 300 shares immediately, at the market." I'd holler into the phone.
"Harvey would call back ten minutes later telling me that I'd bought 300 shares at 79 1/2."
"Seventy-nine and a half?" I'd say.
"Powerful buying by the institutions. No telling how high this baby's gonna go" Harvey said.
The stock would close at 80, maybe 81 and I began to do a little math. Three-hundred shares, up 1 1/2, I was ahead $450. Then I began to extrapolate. Let's see...125 minus 79 1/2 was 44 1/2 points. Times 300 shares...I was looking at a $13,500 profit.
Next day the stock would open at 82, run to 84 in the first half hour then back off and close at 81. The following day it would close at 79. Then 78...76...74."
"I’d call Harvey in a panic. What's wrong with my stock Harvey?"
"Nothing's wrong. Just a little profit taking. Why don't you buy another 300 shares down here, we call it "buying the dip", cut your average cost down to 76. I just got off the phone with the analyst and he's more bullish than ever. Says they’re gonna come in with great numbers for the quarter."
"Buy me 300 more Harvey. At the market!" I'd holler.
"So what happened?" asked doc Kronkite
"A nice tax loss I got when I dumped my 600 shares at 65."
“Oy, no wonder you’re in analysis.” Said the doc.
“But I was lucky” I told him. “Because a week after I sold, the company reported great numbers for the quarter and the stock dropped another ten points in two days.”
“But how can that be? Shouldn’t the stock go up?” cried the doc.
“That’s what I used to think. Then I met Dortmunder and he straightened me right out.”
“What’s a Dortmunder?”
“Dortmunder’s my trading partner doc. Sharp little guy. Wears three piece Saville Row suits, talks in a clipped British accent. A hell of a trader doc.” I didn’t tell the doc that Dortmunder was a chimp with an IQ of 189. Maybe next week.
“So you two trade together?” he asked.
“Sure doc. We sit at desks facing each other. He’s got his Dell and I’ve got my laptop. And we trade all day long.”
“And this works? “
“It does now. But we had some problems at first.”
“Problems? Talk on me about problems. I’m a specialist you know.”
“I know doc. See, a while back I’d do my research, my due-diligence as we call it, hours before the market opened. One morning I told Dortmunder that I was gonna buy some AMZN at the opening.”
“AMAZON? Indeed. Tell me why” Dortmunder asked.
“So I told him about what a great internet play it was, how sales were expanding and that they were on track for a huge Christmas season.”
“And did this Dortmunder agree with your assessment?” asked the doc.
“Not exactly doc. He threw a banana at me.”
“A banana?”
“Yes doc, the little guy has a fondness for bananas. Eats ‘em all day while he trades. Then he asked me why I felt I had to buy AMAZON at the opening. So I told him.”
“What did he say?”
“He said that AMAZON was likely to gap up on the opening, and that I should short it. I was mortified doc. I’d never shorted anything in my life. If you want to know the truth doc, I was kinda scared at the thought of shorting a stock.”
“So what happened?”
“Well, the little guy told me to pull up the AMAZON chart, which I did. Then he said “see that, that’s a double doji. See that? That’s an inverted hammer. See that? That’s the 200-period moving average on the 15-minute chart which will likely blunt AMAZON’s move after the opening gap. We shall wait for a three bar reversal and then we shall short AMAZON. We are about to enter battle. Follow me.”
“This is how he talks?” asked the doc.
“Yes, but with a clipped British accent.”
“What happened?”
“Well doc, the market opened strong. The NASDAQ was up 50 points in the first ten minutes. The techs and the internets were flying. AMAZON gapped up two points on the opening to 54 and soon was trading at 55 ½. Dortmunder told me to get ready.”
“Were you ready?”
“I gotta tell you doc, I was shaking. I’d never done anything like this before. Then Dortmunder said “SHORT TWO HUNDRED. NOW!” and I hit the sell button. Ten seconds later my fill came back at 55 5/8.”
“How did you feel? Being short I mean?”
“Well doc I was scared but kind of excited too. Maybe because Dortmunder seemed to know what he was doing. Then Dortmunder asked where I placed my stop.”
“Stop? What stop? If the stock is going down why do I need a stop?” I cried. Dortmunder threw another banana at me and said very quietly “One always carries a plan of retreat when one enters battle.”
“But where? Where do I put my stop? I wailed.
“You may place your stop where I placed mine. At 57 1/8. Do it. NOW.”
I took a quick peek at the screen as I was entering my stop, saw that AMAZON was at 56 1/8. I was losing half a point already. “Maybe we should cover here, take the loss?” I asked Dortmunder.
“We have only just begun to fight” he said, sounding an awful lot like Winston Churchill.
“Did you get stopped out? What happened?” the doc cried.
“Well, AMAZON traded between 56 and 56 ½ for ten minutes or so then started to slip. 55 ¾, 55 ½, 55 3/8 then to 55.”
“We shall lower our stops now to 56 ¼.” Dortmunder said. I lowered my stop. When I’d finished I looked up. Dortmunder was smiling. “Get ready” he said.
“Ready for what?”
“We shall cover when AMAZON fills the gap. And then we shall reverse position and go long.”
“I gotta tell you doc, my head was spinning. Go short, go long. This was simply too much for me. What about earnings? What about revenues? What about the analysts upgrades and target prices? I asked Dortmunder.
He looked at me like I was a monkey and said “Poppycock.”
Now AMAZON was trading just above 52. Dortmunder said “It has filled the opening gap. Buy 400 at the market.”
“Did you?” asked the doc.
“I did doc. Covered the 200 short for 4 plus, went long 200 and kicked ‘em out half an hour later for another 2.”
“How did you feel?” he asked.
“Doc, it was great. Almost better than sex” I said.
“No!”
“Yes!”
“But what’s a doji? And what’s a gap?” he asked.
“Not now doc, our hour is up. See you next week.
Lee Kramer
I just returned from my weekly session with my shrink, the garrulous but never sanctimonious Doc Kronkite.
I must report that the session did not go well. The Doc spent most of my time railing about Mendelbaum the fund manager who put him into stocks that dropped faster than apples heading toward Newton's noggin...LUCENT, VRTS, IBM and NTAP and which led to the Doc getting a margin call.
The doc wanted to know why I was a daytrader. Worse, he wanted me to show him how to daytrade. A daunting task, but I sallied forth.
"See doc" I began "I used to be a believer, like you. I bought stocks when Harvey my broker called to tell me that some company was just "upgraded" to a Very Strong Buy by an analyst who toiled tirelessly at a prestigious brokerage house.
"Where'd it close yesterday?" I'd ask Harvey.
"$75" he'd say.
"Where is it now?"
"$78 and looking strong" he'd say, "and they're looking for it to hit 125" as he began to write up a buy ticket.
"Buy it! Buy 300 shares immediately, at the market." I'd holler into the phone.
"Harvey would call back ten minutes later telling me that I'd bought 300 shares at 79 1/2."
"Seventy-nine and a half?" I'd say.
"Powerful buying by the institutions. No telling how high this baby's gonna go" Harvey said.
The stock would close at 80, maybe 81 and I began to do a little math. Three-hundred shares, up 1 1/2, I was ahead $450. Then I began to extrapolate. Let's see...125 minus 79 1/2 was 44 1/2 points. Times 300 shares...I was looking at a $13,500 profit.
Next day the stock would open at 82, run to 84 in the first half hour then back off and close at 81. The following day it would close at 79. Then 78...76...74."
"I’d call Harvey in a panic. What's wrong with my stock Harvey?"
"Nothing's wrong. Just a little profit taking. Why don't you buy another 300 shares down here, we call it "buying the dip", cut your average cost down to 76. I just got off the phone with the analyst and he's more bullish than ever. Says they’re gonna come in with great numbers for the quarter."
"Buy me 300 more Harvey. At the market!" I'd holler.
"So what happened?" asked doc Kronkite
"A nice tax loss I got when I dumped my 600 shares at 65."
“Oy, no wonder you’re in analysis.” Said the doc.
“But I was lucky” I told him. “Because a week after I sold, the company reported great numbers for the quarter and the stock dropped another ten points in two days.”
“But how can that be? Shouldn’t the stock go up?” cried the doc.
“That’s what I used to think. Then I met Dortmunder and he straightened me right out.”
“What’s a Dortmunder?”
“Dortmunder’s my trading partner doc. Sharp little guy. Wears three piece Saville Row suits, talks in a clipped British accent. A hell of a trader doc.” I didn’t tell the doc that Dortmunder was a chimp with an IQ of 189. Maybe next week.
“So you two trade together?” he asked.
“Sure doc. We sit at desks facing each other. He’s got his Dell and I’ve got my laptop. And we trade all day long.”
“And this works? “
“It does now. But we had some problems at first.”
“Problems? Talk on me about problems. I’m a specialist you know.”
“I know doc. See, a while back I’d do my research, my due-diligence as we call it, hours before the market opened. One morning I told Dortmunder that I was gonna buy some AMZN at the opening.”
“AMAZON? Indeed. Tell me why” Dortmunder asked.
“So I told him about what a great internet play it was, how sales were expanding and that they were on track for a huge Christmas season.”
“And did this Dortmunder agree with your assessment?” asked the doc.
“Not exactly doc. He threw a banana at me.”
“A banana?”
“Yes doc, the little guy has a fondness for bananas. Eats ‘em all day while he trades. Then he asked me why I felt I had to buy AMAZON at the opening. So I told him.”
“What did he say?”
“He said that AMAZON was likely to gap up on the opening, and that I should short it. I was mortified doc. I’d never shorted anything in my life. If you want to know the truth doc, I was kinda scared at the thought of shorting a stock.”
“So what happened?”
“Well, the little guy told me to pull up the AMAZON chart, which I did. Then he said “see that, that’s a double doji. See that? That’s an inverted hammer. See that? That’s the 200-period moving average on the 15-minute chart which will likely blunt AMAZON’s move after the opening gap. We shall wait for a three bar reversal and then we shall short AMAZON. We are about to enter battle. Follow me.”
“This is how he talks?” asked the doc.
“Yes, but with a clipped British accent.”
“What happened?”
“Well doc, the market opened strong. The NASDAQ was up 50 points in the first ten minutes. The techs and the internets were flying. AMAZON gapped up two points on the opening to 54 and soon was trading at 55 ½. Dortmunder told me to get ready.”
“Were you ready?”
“I gotta tell you doc, I was shaking. I’d never done anything like this before. Then Dortmunder said “SHORT TWO HUNDRED. NOW!” and I hit the sell button. Ten seconds later my fill came back at 55 5/8.”
“How did you feel? Being short I mean?”
“Well doc I was scared but kind of excited too. Maybe because Dortmunder seemed to know what he was doing. Then Dortmunder asked where I placed my stop.”
“Stop? What stop? If the stock is going down why do I need a stop?” I cried. Dortmunder threw another banana at me and said very quietly “One always carries a plan of retreat when one enters battle.”
“But where? Where do I put my stop? I wailed.
“You may place your stop where I placed mine. At 57 1/8. Do it. NOW.”
I took a quick peek at the screen as I was entering my stop, saw that AMAZON was at 56 1/8. I was losing half a point already. “Maybe we should cover here, take the loss?” I asked Dortmunder.
“We have only just begun to fight” he said, sounding an awful lot like Winston Churchill.
“Did you get stopped out? What happened?” the doc cried.
“Well, AMAZON traded between 56 and 56 ½ for ten minutes or so then started to slip. 55 ¾, 55 ½, 55 3/8 then to 55.”
“We shall lower our stops now to 56 ¼.” Dortmunder said. I lowered my stop. When I’d finished I looked up. Dortmunder was smiling. “Get ready” he said.
“Ready for what?”
“We shall cover when AMAZON fills the gap. And then we shall reverse position and go long.”
“I gotta tell you doc, my head was spinning. Go short, go long. This was simply too much for me. What about earnings? What about revenues? What about the analysts upgrades and target prices? I asked Dortmunder.
He looked at me like I was a monkey and said “Poppycock.”
Now AMAZON was trading just above 52. Dortmunder said “It has filled the opening gap. Buy 400 at the market.”
“Did you?” asked the doc.
“I did doc. Covered the 200 short for 4 plus, went long 200 and kicked ‘em out half an hour later for another 2.”
“How did you feel?” he asked.
“Doc, it was great. Almost better than sex” I said.
“No!”
“Yes!”
“But what’s a doji? And what’s a gap?” he asked.
“Not now doc, our hour is up. See you next week.”
Lee Kramer |
