Wednesday, December 3, 2008

Margin: Friend or Foe?

Since I began writing about my trades with the funds of a friend, I have been talking about using margin to leverage my purchases, but I must warn those of you that are not familiar with these types of trades that the use of a margin account can be very dangerous.

While allowing you to double your returns on a trade, it can also double your losses and should not be used lightly. For me, the sweetest leverage is to go long in an inverse EFT that trades at 2X the inverse of the index it represents plus margin.

This gives me what I would consider a leverage of 4X. This was how I was able to grow that 25,000 so fast on the first day. I'll talk more about inverse EFT's another time, but for now just remember that margin accounts can be your best friend and your worst enemy at the same time, so be very cautious if you use it.

Have a good one,

Tuesday, December 2, 2008

Another Good Day

My second day of money management included the Stock Assault pick JNJ which I plugged into my equity grading program to yield a 83 which put it into the A+ category, closely matching the Diamond Edition grade.

I looked at my charting software to see a nice "head and shoulders" pattern formed, putting me at the base for a nice run, so I put in a limit order of $56.00 at market open which filled giving me 1215 shares for a margined 68,040 play.

JNJ closed the day at $56.83 for a modest 1.48% gain. Since there is plenty of room to move up the neck of this pattern, I am holding to see what tomorrow brings.

So far, what started off the week as $25,000 finished Tuesday as $35,073. Not a bad two days for my little venture.

Have a good one.......

Monday, December 1, 2008

My First Trade With Another's Funds

As promised, I am documenting my trades as I invest for a very fortunate friend. I convinced him to let me have $25,000, as this is the minimum for my broker to allow day trades. I don't believe in day trading, but if I get stuck in something, I want to be able to get out of it quick, especially with someone else's money. So, with margin, I approached the day with $50,000 to invest.

Stock Assault triggered no trades today, which is excellent because the futures called for a blood-bath. Since I don't short stocks I was only left with inverse EFT's to choose. The most wildly swinging index, IMHO, is the Russell 2000 (RUT) and the best EFT's for that is the UWM for a long play, and TWM for a short play as it is the inverse. This means that as the Russell 2000 goes down, TWM goes up at 2x the amount. Sweet.

So I put in a limit order this morning of 112.23 which immediately filled giving me 445 shares. Well, late in the afternoon, I sold those shares for 132.56 for a gain of 20.33 per share, or about 9046.85 dollars. So my first trade was net 18.09 %. What a way to start the week off! My friend, of course, is very happy making a little over 9000 dollars when the Dow was down over 600 points.

I won't disclose our arrangement just yet, because we really don't have one, but he has promised to take care of me. He really has no choice since the money is sitting in my account. I'm looking forward to putting a new lot of 34,046 dollars to work tomorrow on a Stock Assault pick.

Have a good one!
- Roger

Sunday, November 30, 2008

Profit Taking or Just a Down Day?

Often times when a finance site posts a story on a big down day with no apparent news to explain it, the term "profit taking" is thrown around as a catch-all phrase. Seriously, the real profit taking is done towards the close of the previous day's action and the down day that ensues after is merely a knee-jerk reaction as the market contracts in a normal fashion.

As we approach the dawn of a new and expanding market recovering from the worst days, we will see several contractions. The size and length of these will be directly proportional to the size and breadth of the preceding days of expansion. There will always be some profit taking along the way, but a down day is just simply that. Let's not label it the same way every time there is no news to explain it, other than the normal cycle of the growing market.

Have a good one,