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On the Verge of Breaking Out

12/31/2014

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I am so close to massive success I can taste it. On this last week of the year all of the lessons learned from my experiences in the market the past two years are all coming together at once. All of the pieces of the puzzle are there. I have tried pretty much every trading strategy using every available financial instrument by this point: stocks,options,etfs,volatility,forex,etc.. I have focused on technicals, fundamentals, news driven events, buy out targets, hyped momentum, flavor of the day, random tickers, penny stocks, premier issues. I've invested, day-traded, swing-traded in all manner of timeframes. I've made and lost fortunes.

I have learned much about markets. The sheer extent of everything that's involved with markets is truly amazing. Two years ago I didn't even know what the whole bull/bear thing was about and now I find myself investigating credit cycles and speculating on how the drop in oil prices will affect emerging markets. The Psychology, the waves, the way the whole thing works is spectacular and immensely interesting.

Perhaps most importantly I have learned the valuable lesson of what's most important in this business. There is one thing that you must always keep blazon in the front of your mind at all times. It is easy to get distracted wandering around aimlessly in the halls of speculation and the macro. It is easy to get lured by the pixies of pride and ego, eat the apple from the snake of greed. The market can be fun and exciting, certainly never dull. But remember this: You trade for one reason and one reason only: Trade to Make Money.

It all sounds so simple. I stated in my very first blog post that I am in these markets for one reason, to make money. That is in fact the only reason to be in this business. That is the job description. We aren't exactly saving the world here. We really aren't benefiting society in any way through trading. We are merely trying to profit on the gyrations of the markets. Day in and day out we put our money at risk to make more money. That's what I love about this business though. Wall street has no qualms about what it does. The market serves a purpose. That purpose is to generate and preserve wealth for anybody who dares to get involved. The stock market is a pillar of and the greatest invention of capitalism the world has ever known.

Now as I wrap up my second year trading. I find myself reminiscing on what has worked for me and what hasn't. What have I learned?

Avoid Options: Options Elite, Don't get roped into options. Options and Derivatives are all the rage on the street. The use of derivatives is the most prevalent it has ever been in history. They seem so appealing. Immense Leverage. Options have the allure and false promise of getting rich quickly with little risk. Unfortunately, that couldn't be further from the truth. The vast majority of your options contracts will end up expiring worthless.
Reduce Positioning and Increase Patience for Swing Trading: I made and lost a ton of money swing trading. Swing trading can be that fine line between investing and trading. When you hold a position for extended periods of time you must have a lot of confidence that you are correct and also a lot of patience because the moves that you envision, if they do actually happen to play out, usually take much longer than you originally anticipate. If you are taking that overnight risk it is imperative that you have a rational and conservative position. Never load up the boat in anticipation that you cannot be wrong. Endurance in trading is not about how much you can make but in how much you don't lose. I had both  success and failure in swingtrading. I think that it's a viable way to make money in the market but it is not without a high level of risk. That overnight risk is just very hard to account for. I think that success in swingtrading is a long, arduous, journey, with massive peaks and deep troughs that must be navigated.
Trading is not easy. There are no easy battles in this market, every victory is hard fought. Every different trading system whether swing, daytrading, options, stock and forex all have their pros and cons. In the end though thinking back of all the times I made money in the past two years, the easiest money I made, mentally, emotionally, practically was when I DGAF about the ticker. If I didn't know anything about the story, had no preconceived biases, bought into something hoping for profit but also managed risk with a tight stop as I could never be sure how the darn ticker was going to spin around. When I got in, profited and got out, those were the trades that consistently made me money. 
You don't need to take overnight risk, you don't need to constantly hit home runs, you don't need to get rich today. Be patient, be disciplined, wait for the good setups, wait until everything lines up perfectly. Take your shot but have plenty of cushion for failure. Sometimes you will be wrong, sometimes you will be right, but it's not about that. It's about making money consistently. It's about surviving, it's about having goals and methodically conquering them.  It's about never accepting defeat. It's about learning from your mistakes, getting up and trying again and again, tweaking your strategy, adjusting your approach until you succeed. Keep the losses small and over time the winners will take care of themselves. It is very easy to make money with a logical trading strategy, but only if you are disciplined. It is frighteningly easy to lose money with an undisciplined approach. Keep a cool head at all times. Never let emotions cloud your better judgement. Remember that life is not all about the money, but trading is. Make that Money
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Don't Trust the Rally

12/30/2014

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In my post Emerging Markets Exodus is Americas Gain I laid out a bullish thesis for American equity markets and the USD. I stand by that bullish thesis but there is simply too much bullshit floating around in this market to ignore the imo much stronger bearish thesis.

QE Built an unprecedented house of cards.

Oil has crashed wrecking havok on not only the energy sector but entire nations.

This is now going on one of the historically longest bull market rallies in history with virtually no significant corrections.

As the indices relentlessly press new highs, under the surface many stocks have been hit hard and are already in their own respective bear markets.

The real American economy isn't doing well. We have very low and stagnant labor force participation as % of population.

Young people can't find jobs and the bulk of the jobs they can find are crap service jobs. They certainly can't afford to buy houses.

Rates are Rising! That alone might be enough to cause a recession.

It's probably wiser to just daytrade this market but if you are swinging use caution and don't fool yourself into thinking this market is all roses. People are insanely optimistic right now and there are very serious major headwinds for this market heading into 2015.



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Hit Singles Consistently

12/28/2014

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We all step up to the plate wanting to hit a home run. It can be done but the odds of hitting a single are much better.

The swing must be calculated. If you swing wildly and blindly you might get hit with a fastball square in the gut.

Use the laws of mathematics to your advantage. Logic is a way of thinking/ a thought process with parameters. Movements of the markets are not mathematical in nature but reliable trading strategies can be.

When you take out the infinitely variable factor of overnight risk out of the equation, trades can be quantified. Risk can be suitably accounted for and measured.

The Macro game is one to be played by fools much greater than myself.

I'm focusing on making one, solid, well-reasoned, and realistic trade every single day.



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2015 Strategy

12/28/2014

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Big Sky Day Trading

Live in Reality: temper greed, lower expectations, shorten timeframes, measure moves, lock profits, make winners count: Grow Exponentially
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3 Long

3 Short

Actionable Day Trades

Every Day

Measured Moves

Levels Mapped

Risk Defined

First & Last Hour

One Good Trade

Cash Balance EOD

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Patience

*Discipline

Position Sizing

No Emotions
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Stocks In Play

High Beta

Intraday Volatility

Highly Liquid

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NO OPTIONS

NO OVERNIGHT RISK

------------------------------

Consistency > Swing for the Fences Home Runs / Strike Out

Make one solid, well-reasoned, realistic trade every day.

How to Trade

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2014 The Year of Wild Swings

12/24/2014

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2014 was a learning experience. My account expanded and contracted so many times that I don't even feel anything looking at the numbers spin around anymore. Maybe that's what they mean when they say you can't be emotional in this business. After you get built up and torn down so many times you stop putting any emotional energy into it, you have to. It's too draining for your psyche to put any self worth towards the value of your account. There are too many ups and downs in this business to think that how much money you have has any basis at all towards your value as a person. Ego really gets you nowhere. In this business one minute you're up on top of the world conquering mountains and the next you're face down in the sewers. 
You can't predict the future, nobody can. At the beginning of 2014 if anyone would have told you that oil would be cut in half and the market at all time highs by the end of the year nobody would believe you. I managed to turn a massive win in GPRO into a loss by years end by greedily adding to my position, lowering my cost basis, destroying my cushion on the friday before the lockup. The lockup, the lockup, well yea they changed up the lockups so many times it was hard to keep track of what was even going on. They were too scared to release all the shares at once and instead they managed to orchestrate a short squeeze. God so many fucking short squeezes this year, I'm beginning to get afraid to short, I'm not sure that it's worth the risk. You can make more money going long anyways.
Long and strong, I really thought that the end of QE was going to affect this market and cause it to drop. We had plenty of macro bullshit to contend with, plenty of scares, but in the end the market completely brushed them all off and consistently V-Shaped to new highs. America is just a financial powerhouse. I wish I saw that Emerging Market Exodus sooner and based my biases long but let's face it many prominent Bulls got fucked up this year too. 2014 was a year of chop and frustration for most market participants.
There's just no certainty in this business. You could say that X will affect Y in XYZ way but at the end of the day it's just a guess. The fact that nobody really knows what's going to happen is what makes the market a level playing field. The market isn't going to go up forever, but it also isn't going to go down forever, just as with life it's got it's ups and downs and all you can do is make the best of what you're given.
If you are going to swing trade, then you better have proper position sizing, keep it smaller than you think. You must also have amazing patience and be willing to cut a loss small if your trade goes against you, even if it was at one point a winner.
If you are going to daytrade you better have amazing discipline and use proper position sizing, hard stops and price targets. Don't get greedy, pocket those profits always. Also if you are daytrading you must Never hold something overnight. 
Know your timeframe and adjust your trading strategy accordingly.
In summary be patient, disciplined, use proper position sizing, cut your losses small, don't get greedy,  and most importantly remember that this is just a business, a means to an end. Money; while useful, at the end of the day just doesn't really mean much. Never let it define you as a person. There are far more important things in life than the size of your bank roll.
Cheers to a better 2015!
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Emerging Markets Exodus is Americas Gain

12/23/2014

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All it takes is the mere suggestion of interest rates rising at some undetermined point in the future to set off a chain reaction. 
The USD $ is being perceived as a safe haven. Look at this beast.
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The American energy sector is fucked. Look at the job growth in Oil & Gas from the Financial crises compared to all other non-farm payroll jobs. A lot of people working in the oil patch are about to lose their jobs.
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The silver lining for American markets is that the extent of destruction in our Energy sector can't even compare to other countries who are much more dependent on high oil prices to finance their economies such as Russia, Venezuela, etc.. Look at what's happening right now in 'emerging' markets.
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The strength in the USD is beginning to wreck serious havoc on emerging market currencies.
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Make no mistake, many American companies are multinational corporations that do business around the world. We are not immune from contagion. However, we are relatively strong compared to the developing world and so people are pulling their money out of Emerging Markets and flooding the USD and American Markets.
Compared to Developing Markets, whose assets have been growing slowly, Emerging Markets have been flooded with investment dollars and have
nearly doubled in size since 2008

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(Composition of financial assets, emerging markets, US$ billion)
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(Composition of financial assets, developed markets, US$ billion)
So  basically there is a ton of easy $ floating around in emerging markets right now as a consequence of the developed markets extreme easy money, QE, ZIRP policies. Keeping interest rates too low for too long tends to create malinvestment. When Investors get scared about the safety of their investments, they GTFO of there and will not hesitate to place it somewhere they percieve as 'safer.' So the Stock Market Indices are rising, the USD is rising, we are playing musical chairs right now but this is a late stage bull market and everybody is chasing yield and gains, taking on too much risk, using too much leverage. It's going to totally implode at some point but my read on things is that we will be the last holdout, the bastion of safety. Once the contagion finally reaches the United States, everybody is going to be fucked.  Short selling America right now makes no sense, it's still too early.
I don't trust this rally one bit. I still think that this energy sector implosion is going to rear it's ugly head into the data sometime in the near future but until then I am focusing my strategy hedged Long America/ Short Emerging Markets. 

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Ambrose Evans-Pritchards on Fed Rate Hikes & Emerging Markets @ 25:45

 Merry Christmas

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The World is Yours

12/21/2014

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What a wild ride 2014 has been. From my account explosion in the October plunge followed by the relentless siphoning of the biggest rally in 100 years that almost wiped me out. They have not all been victories but in TWTR,NFLX,TSLA, PLUG,KNDI,CNET,HDY,GTAT,AVP,YELP,GPRO, etc..  I have made some brilliant calls!
I have learned much: Primarily what I have learned is that to succeed in this game you must be patient and disciplined. Even if you end up being correct, things take much longer to play out in the market than you anticipate. When the game is in play you never know what is going to happen, therefore proper risk management is imperative. It's one thing to be right, it's another to actually make money on your thesis. I lost money in both KNDI & GTAT because they pulled short squeezes, freaked me out, I lost my composure, got scared and covered near the top. Had I been patient and stuck to my guns I would have profited immensely on both of them. Hell, GTAT ended up announcing bankruptcy out of the blue one day and wiped over $1B in capital! 
I have had great mental victories.  I received so much hate for my GPRO thesis that just being around certain people became emotionally draining. However, with GPRO I stuck to my guns the entire time, never flinching and ended up destroying my advisaries in the most satisfying victory of my trading career to date! Jesse Livermore knew that to be successful you must believe in your capabilities to the fullest. Never take a tip from someone else, never take a trade that is not your own. If you are not absolutely confident, you will manage the trade wrong and are likely to take a loss where there could be a win. Trust and believe in yourself and your capabilities always!
There are good people out there. To be successful, you must surround yourself with dedicated and passionate people who love what they do. I started my trading career going at it alone. Along the way I have encountered various people of all types and have learned something from all of them. Be a good person and strive to constantly make new friends and connections. Ignore the trolls and align yourself with people who will take your game to the next level.
Believe in yourself and your thesis but don't ever let greed overtake you. When you are making money all you want to do is make more. However, I have let many profitable positions slip into losses by not banking what profits I had and greeding for more. 'Do not go past the mark you aimed for, in victory learn when to stop.'
From the depths of the November lows, I have increased my account over 70% in a month. This is only the beginning. I learn more about the markets, myself, strategy, and making money every day. I have no doubt that in time I will grow my account immensely and make my fortune through these markets. Every day is a new day and a new opportunity. The world is yours, conquer it!

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Reversal/Venezuela/Energy

12/13/2014

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Massive Reversals abound in the market. This is an update from my previous post entitled Something Has Got to Give
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It's amazing how quickly things can change in the market. Direction, Sentiment, Trend, P&L. Investors are the most fickle creatures on earth. There is safety in numbers. Oblivious, the masses congregate amongst themselves, lavishly rubbing each others backs, basking in the glory of their genius investing acumen and mountainous QE gains.
However, those in the middle of the herd cannot see the stragglers on the fringes who are systematically being taken down and feasted upon by the predators surveying the irrationally exuberant orgy of blind foolishness from the bushes.
As the speed of global economic growth begins to stall and recess, the price of oil is crashing.
Many nations, especially those in the 'emerging' markets are dependent on expensive oil to fund their government and are being thrown into turmoil by the commodities collapse. Venezuela is a prime example of this. The nation is imploding upon itself with great social unrest. Rolling blackouts begin to strike. The citizens are going through a great depression in their own right as their currency inflates and lines for government sponsored food programs grow longer by the day.
This is the picture of hyperinflation; a horrific danger inherent in any unbacked fiat currency monetary system.
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This destruction of the energy sector is being touted every single day on CNBC as some sort of brilliant 'gift' and 'tax cut' to the consumer by Fat Cat CEOs who are completely out of touch with reality. These people are so delusional and oblivious to the struggles of the every day man that they have convinced themselves into thinking that saving $20 a week on gas is actually going to substantially help the Average Joe.
Tell that bullshit to the poor guys who are going to lose their jobs as the Bakken goes bankrupt.
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Current Prices 12/13/2014
The energy sector has been dropping for quite some time but as the fallout contagion spreads, people are only now beginning to wake up. Strap in and Good Luck!
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Bullish On Banks

12/7/2014

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The system is designed for them. They control our capital and our markets. The people behind the curtain, the Banks.

We haven't seen inflation because the money never trickled all the way down to us plebs. Aside from massive corporations on Wall St. The money is sitting in the vaults.

[T]he Fed has been paying the big banks high enough interest on the funds which they deposit at the Fed to discourage banks from making loans. Indeed, the Fed has explicitly stated that – in order to prevent inflation – it wants to ensure that the banks don’t loan out money into the economy, but instead deposit it at the Fed:

Why is M1 crashing? [the M1 money multiplier basically measures how much the money supply increases for each $1 increase in the monetary base, and it gives an indication of the "velocity" of money, i.e. how quickly money is circulating through the system]

Because the banks continue to build up their excess reserves, instead of lending out money:

http://www.washingtonsblog.com/2013/06/81-5-of-money-created-through-quantitative-easing-is-sitting-there-gathering-dust-instead-of-helping-the-economy.html

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If the fed does in fact raise interest rates, the game has been set up for the Banks to profit immensely from their massive cash hoards.

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If this merciless one way Bull market is to continue unabated, let us profit from TPTB that finance it!

Financials

The Risk to financials is the blowup in energy. Im not sure how a wave of defaults in the high yield credit market will affect the creditors yet..

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New Strategy

12/4/2014

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In life, we always have the opportunity to start fresh. When trading, if a position is not working we always have the luxury of cutting our losses. It does not make any sense to endure pain. Pain does not make us stronger, pain often leads to suffering, which leads to depression. You need to remove the negative influences from your life. If a strategy isn't working, you need to change it and adopt a more successful strategy.

I wanted to be a swing trader, to make money swinging a big line like my idol Jesse Livermore. Unfortunately I have not had much success with that strategy. I find the overnight risk shakes me, i am more tempted to abandon proper discipline. Swinging makes me take more chances, perhaps foolishly so. If I make money one day, I think to myself 'I'll make even more the next if I hold!' Only to end up turning a nice winner into a loser the next day as it torpedos my stop loss.

Risk Management is a big one. Too often I find myself putting on a daytrade amount of capital, then getting greedy swinging it and taking on more risk than I can handle.

I've had stocks gap down 60% overnight on me before. If I'm watching the market all day is taking on that much overnight risk really worth it?

Too many failures as a swingtrader. Yes that is how massive wins are made, but that is also how massive losses accrue.

I'm going to try the life of a true blooded day trader. It is still hard to pull change out of the market, on any timeframe. However, what I have learned about myself is I cannot predict what is going to happen a year,month, or a day from now, I can only speculate, but using technical analysis and measured moves I have a slightly better chance of predicting what will happen an hour from now, at least I have the luxury of using hard tight stops and realistic price targets. If I can just make a little bit of money every day, that will add up over time and I can sleep better at night knowing there isn't going to be some exogenous event that will wreck my account the next day.

I'm going to give daytrading a try. Swing trading has just not been working out for me as i had hoped.

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    R. J. Sullivan IV

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