Stock Pick of the Week: January 1st, 2012

Happy New Year everyone! While I can't report that I had a stellar return on last week's pick I can say that it wasn't a waste of time. Last week I said I wasn't going to buy into it... yet. I wanted to wait and watch it play out. Thank goodness I did.

Last week there was only 4 trading days because of the observed Christmas Holiday on Monday.  So we notice that the candle stick pattern from the Thursday and Friday before looks like it's a bullish pattern and indeed on Tuesday, it did jump up... a little.  Not enough for an investment of $500 to turn any sort of profit.  In fact, because Wednesday closed lower than the Tuesday close, I may have made a couple bucks on the trade but then lost it all plus more on the trade commissions.

Right now this stock is kind of playing out the way I thought it would.  William's %R is dropping, volume is leveling out and the candles are getting ready to drop into the TAZ.  According to Elliott Wave, we're looking at entering the 4th wave this week.  Also according to Craig's 4 wave system, we're entering the 4th wave as well.  This would be a great time to short the stock if we had enough money to do it.  Unfortunately, you need a minimum of $2500 to short stocks so for now we're going to wait.

Remember, I'm only investing $500.  That means that the risk comes pretty quick.  I want to be absolutely sure that I'm going to make at least a $5 return after commissions on each investment, preferrably more.  Thank goodness I had such a high return last month.  It padded the cash reserves, removing emotions so I don't feel the need to get in on the first tempting stock I see. That leads to excessively risky trades.

Just like Mr. Warnock said about reading Astrological Charts, with reading a Stock Chart, you need to be almost clinically objective, even when it comes to taking losses.  We're not always going to have winners.  That's just reality.

And speaking of Astrological Charts and Stock Charts, I had someone ask me if I ever thought to combine the two fields.  I would love to learn how to do that, so this week I will scour the internet to find hints and clues.  In the meantime, I'll cast an horary chart and post my interpretation next week.

Until tomorrow...

Stock of the Week: December 25th

Ok - before I get onto this week's stock, I want to address my success last week.

Let's consider all of the details. First, I had $500 to start with, less $10 for the purchase commission - so I ultimately had $490 to spend on a stock. DVAX was originally quoted at $3.07 last Sunday, but since it opened at $3.00 on Monday, my trade executed lower, and I actually got in at that lower price. So my total account looked like this:

$477 stock value (159 shares at $3ea.)
$13 cash
Total Portfolio Value of $490 (original $500 less $10 commission)

On Monday, the stock closed up at $3.02, but then on Tuesday it went up to a total share price of $3.23. Multiplied by 159 shares = $36.57 total profit! Wednesday, when the market opened, my order to sell was executed but this time at $3.37. Nice! That's a $58.83 profit!

Since I'm working with such small numbers, I sold on Wednesday because I really don't have the luxury of waiting another day to really follow the trailing stop strategy found here. Not only that, but I've told myself that I want to make a 5% monthly return on my trades. With these profits, I've already hit that mark and with only one trade. Let's see how that works out.

If I had a total portfolio value of $490 and take my $58.83 profit, my portfolio value just increased to a total of $548.83. Now, since I'm selling I will have to pay another commission fee of $10. This drops my total value to $538.83 - I've made $38.83 in two days. That's a 7.766% return. Since I've already surpassed my mark, I could sit back and not invest for the rest of the month. I want to remove emotions from the trade and since I have a goal in mind, I figure its easier to take my profits and live to trade another day - but I also want to continue increasing my revenue.

This week, I'll bank the $38.83, and only trade on the original $500. Less the $10 commission, I have $490 to spend on this week's stock seen below. Same rules as last week. If my portfolio drops by $15, I sell and get out of there to minimize my losses. Worse case scenario, I lose a total of $35 and I still have a portfolio value of $503.83.

So this week I'll be looking at Charming Shoppes, Inc.

I'm not actually going to buy into this stock yet. It doesn't have the right feel. I'm hoping that it will turn around in about two or three days. Notice the engulfing pattern of the last two days. Thursday closed down really low but then there's a nice hammer candlestick on Friday. This looks to be an indicator that the stock will drop a little further. Not only that but the volume of movement looks like it's kind of stagnant. And if we consider the Williams %R indicator, it's still overbought.

Finally, if we consider the two different wave systems, we notice first in the Elliott Wave system that we are most likely heading into wave 4. October 10th marked the beginning of wave 1, and November 25th the end of wave 2.  We should now be at the peak or end of wave 3 and heading into a corrective wave 4.

This seems to jive with Craig's 4 wave swing system. The stock trades sideways in November making up wave 1, then we see a breakaway at the beginning of December into the 2nd wave. We should now be at wave 3 heading into wave 4.

If the cards fall right, we'll swoop down through Craig's wave 4 and then back up into an Elliott Wave 5 - hopefully by the end of this week. We want to watch for the candlesticks to drop into the TAZ, as Craig calls it, Williams %R to drop to a -80 and hopefully also see a spike in volume with a doji or thin range hammer candlestick pattern.

One final reminder about my conservative approach - I've already met my 5% mark this month so if I don't trade any more stocks this month I'm ok with it. Even Craig says on his website that staying in cash IS a trading strategy. So if CHRS doesn't turn out the way I expected.... meh.

Stock of the Week: December 18th, 2011

Starting on Sundays, I'll post my stock picks of the week and see how successful I am based on the techniques taught at swing-trade-stocks.com and some tips I picked up at Rock Star Day Trader.com.

I want to try to keep this realistic. Most traders suggest you start off with $2500 but since I don't and won't have that much disposable income any time in the near future, I'm going to attemp an initial investment of $500 (not real money). So that I don't lose too much money and maximize the revenue I will have to use stocks that are at a low price - i.e. anything under $5. This is really high risk trading. The income can get really high really quick, but you can also lose money real quick. So my exit strategy is to put a mental stop on a 7% loss of total capital. This equates to a total loss of $35. Typical online trading companies charge about $10 per trade. So, with purchase and sale trade commissions, we're already at a loss of $20. This means that I can only really let the price of the stock drop for a total loss of $15 and anything more than a $20 gain is a profit. But I want to follow Craig's trailing stop exit strategy.

The amount of shares to buy depends on the price of the stock, and the exit price depends on the number of shares purchased.

 DVAX

This chart isn't a dream chart but the price has dropped into the TAZ and if you look at the volume there's a huge spike with a hammer style - almost doji type candlestick. This can signify a turn around in price. It's on a clear up trend. I have two main concerns with this chart. The first is that it may be at the end of this trend. My assumption is that it is either right in the middle of the second wave or its finishing up the third wave heading into the fourth according to Craig's four wave trend cycle.

However, what makes me think it's in the middle of the 2nd is that if we now look at Elliott Wave theory, the first up spike can be wave 1 of the 5 motive wave model. The first time it drops back into the TAZ in November, I would label as wave 2. Going back up into the middle of November is wave 3 and right now, we should be at the bottom of wave 4. It can't go any lower than what it is right now, otherwise it can't be considered the 4th wave in the Elliott pattern. The next move then should be wave 5 which will bring us up further before we start the down trend of corrective waves A, B and C.

My second concern is that the Williams %R is clearly showing that it's not oversold, but I'm canceling that out with the fact that there was a pretty significant spike in volume.

Now, I'm going to buy in first thing Monday morning and hopefully get in at the quoted price $3.07. If I have to pay a $10 commission, I can only use $490 on the actual purchase. This puts my total shares at 159 shares. If I don't want to lose more than $15 then my exit price will be $2.97. That's a 10 cent loss per share. Not a lot of room for error. Hopefully it will pay off. I'll post the results next week.

How to Become a Day Trader

I promised I was going to share some insight into trading, though to be honest I'm really not a day trader... yet. I hope you'll join me and share some of your experiences. Here goes. One of the best free sites that I've found is called Swing Trade Stocks.com. The author of the site offers a great basics "course" if you will. The tricky thing is this: even though the overall tendency of the market is predictable according to the Elliott Wave Principle, the daily activity is more volatile. It's kind of like astrology. You look to the stars for signs and seasons to determine the general happenings of things, but to predict something as minute as an atomic shift in space is extremely complicated and pert'near impossible. But our goal as apprentices, is to learn the large circles (or waves) and then work our way inward. So the next step, after checking out the finviz.com to be the best free stock screener with definable fields, then I pull up the charts on stockcharts.com to take a more detailed look at them, and if they look appealing I'll follow them on freestockcharts.com. Finally, we'll need to experiment before we just go and blow our money on something we really don't know a whole hell of a lot about. I found a great stock trading game at How The Market Works.com. I encourage you to try out all of the above and we'll explore each of them a little more in depth in other posts. Good luck and happy trading.

What is the Secret of the Universe?

Simply put – I don’t know. But I would be leery of the man who says that he does know.

What I do know is that there is a common thread pervading all of the universe and can be observed on a graph over time by studying the stock market.

This is a joke, right?

Au contraire, mon frère. R.N. Elliott discovered quite some time ago, nearly 100 years ago as a matter of fact, that the stock market followed a basic wave pattern of five motive waves and three corrective waves. The whole process is actually a bit more complicated than that, as every topic in this blog tends to be, but the concept is simple and applicable to alchemy.

So why am I discussing this wave process? As you will observe from the rest of the posts on this blog site, I’m quite interested in the quintessence and the human mind (otherwise I wouldn’t be an alchemist and hypnotist). I’m also enthralled with prediction (another reason why I’m a hypnotist as well as an astrologer for that matter). The Elliott Wave Principle is an essential component to understanding all of these things, or is it the other way around? Either way, they compliment each other. In addition to this, I also feel that in order to pursue any of these studies, one must have an efficient supplemental income because they become quite expensive and time consuming hobbies.

I AM NOT A BROKER AND CAN NOT GIVE YOU FINANCIAL ADVICE!! Remember, I’m an apprentice of sorts and trying to learn, while sharing with you what I have already learned.

One final note before I continue to explain the relationships outlined above: I do not intend to reinvent the wheel. If you would like to know more about the Elliott Wave Principle, please go to the Elliott Wave International website for a free introductory course. I suggest signing up for a free account as well for updates and access to additional free learning materials. What follows is only an overview and how it applies to the esoterica of this Workshop.

There is a number, consistent with growth and development patterns throughout the universe. Galaxies swirl in this pattern, the pine cone and sunflower grows in this spiral, and the nautilus shell is spun in the same shape. It is called the Golden Ratio, often called the Fibonacci sequence, a geometric pattern which can be observed in human thought patterns by tracking the buying and selling patterns of the stock market. The Elliott Wave demonstrates the Fibonacci sequence via motive waves (those moving up) and corrective waves (those moving down). The more closely these waves are observed, the easier it becomes to see that each motive wave is made up of other motive and corrective waves. Likewise, all corrective waves are also made up of additional motive and corrective waves. Not only does this exemplify the concept of “As above, so below” but it also demonstrates the universal principle of duality, through active and reactive properties.

Because the stock market shows a society’s fears and desires through what and how they purchase and sell, it is easy to track and document human thought process based on the pain/pleasure principle. This means that these waves, descriptive of the Golden Ratio, actually give evidence to the fact that our thoughts also form in the same geometric pattern as the Nautilus, Pine Cone and Sunflower. There is a unifying thing, a common thread uniting us with all of creation. It is essentially the fifth element displayed mathematically.

Logic should then lead us to consider that if there is a continuous pattern, it should be predictable. I have yet to fully crack the pattern myself, but I understand it in principle. If it is predictable, and we find ourselves short of cash to pursue our studies with an efficient source of income, what better means of funding our education than capitalizing on this pattern and use it for trading?

I will be attempting to practice day trading on a trading game site and will post my activities here on random posts. If you would like to join me, keep an eye on my posts for the name of the trading game site.

Further Reading
R.N. Elliott’s The Major Works of R.N. Elliott

R.N. Elliott’s Nature’s Law: The Secret of the Universe

A.J. Frost’s Elliott Wave Principle: Key to Market Behavior

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